Workers should double their pension savings, says Labour's review
Workers should double the amount they are saving into their occupational pension schemes, a two-year review for the Labour Party has concluded.
The Independent Review of Retirement Income (IRRI) suggests the target for savings should be 15% of salary.
That is a considerably higher level than has been suggested previously.
At the moment the average worker puts just 4.7% of pay into a pension - with most employers making a further contribution of less than 4%.
"To get a decent-sized pension pot for retirement, it is necessary to make adequate pension contributions - something of the order of 15% of pensionable salary," wrote Professor David Blake, director of the Pensions Institute at Cass Business School, in the 588 page report.
Industry experts have agreed with his recommendation.
"I think 15% is spot-on, unfortunately," said Richard Parkin, the head of retirement at Fidelity International.
"It's a rule of thumb we would recognise, although it represents a challenge for those on low earnings," he told the BBC.
The review was set up by the Labour Party, following the government's announcement of planned pension freedoms in the 2014 budget.
On Tuesday the government confirmed that there will be a review of the state pension age. It will report in May 2017, and will be headed by John Cridland, the former director general of the CBI.
The review could mean people joining the workforce today will have to wait until their mid-70s before they retire, experts have warned.
Those under the age of about 55 will be affected by the shake-up, which will consider what the state retirement age should be from April 2028.
Employees taking part in the government's auto enrolment programme will eventually see a theoretical 8% of their salaries going in to a pension.
Employers will be obliged to make a 3% minimum contribution, and workers a 5% contribution.
However in practice, most contribution rates will be much lower than 8%, as the first £5824 in salary is ignored, as is anything over £42,385.
This is the so-called "qualifying earnings" rule.
While welcoming most of Professor Blake's conclusions, some industry experts said savings levels needed to be tailored to individual circumstances.
Conventional wisdom suggests lower-paid workers need to save a higher proportion of their wages than better-paid workers.
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'Force nine gale'
Professor David Blake said too many people did not understand the risks associated with making pension income last.
"It is clear that many of these people will find themselves in the same kind of control as a yachtsman in the middle of the Atlantic in a force nine gale," he said.
As a result he said that pension savers needed more help.
Elsewhere in the report he recommends:
- A "safe harbour" endorsement for pensions, under which the regulator would specify which schemes are dependable
- A single pension regulator, transferring responsibility for bigger schemes from the Financial Conduct Authority to The Pensions Regulator
- New classification system for advice, to make help and guidance clearer
- A pensions dashboard, enabling workers to keep track of all their pensions throughout their lifetimes
- Financial advisers to have more formalised training standards