Auto enrolment contributions won't be adequate, warns the PPI

The report has been funded by the Association of British Insurers and the Defined Contribution Investment Forum, and is based on a model developed by the Department of Mathematics, King's College London.

The report finds that if a median earner saves only at the minimum contribution rate of 8% of a band of earnings throughout their working life, they will have a less than fifty-fifty chance of achieving an adequate retirement income.

Chris Curry, PPI Director said:

"The analysis shows that the outcomes from being automatically enrolled into a defined contribution workplace pension are highly uncertain. In general, individuals will need to contribute more than the minimum level at which they are likely to be automatically enrolled to have a good chance of achieving an adequate retirement income."

"For example, a median earner who starts saving at age 22 and contributes continuously until reaching State Pension Age will need a total contribution from employee, employer and Government of 11% of band earnings to have a two in three chance of receiving an adequate retirement income."

"However, there is not a single contribution rate that will mean that everyone will have an adequate retirement income. Lower earners may be able to contribute less than the hypothetical median earner, as a greater proportion of their income is provided by the state. But higher earners, those who opt-out early in their career and individuals with career breaks need to contribute more than the median earner to have a two in three chance of achieving an adequate income in retirement."

Chris Curry added:

"What happens to the single-tier state pension has a significant impact on the chances of achieving an adequate retirement income. If the single-tier pension is increased each year in line with average earnings growth - the minimum level set out in the current Pensions Bill - rather than the "triple lock" of the higher of earnings, prices and 2.5% that the DWP has used in illustrations, the contribution needed by the median earner to have a two in three chance of an adequate retirement income is 14% of band earnings, rather than 11%."