As the pension age continues to rise, many people expect to fund their retirement by working for longer. But the new research reveals the barriers which could prevent people from doing this and shows that struggles with day-to-day costs like rent, childcare and household bills mean that saving for the future is out of reach for many.
The research shows that action from Government, businesses and employers to tackle these essential costs and ensure that people are able to work for longer is vital. Without this action there is a risk that poverty among older people, which has been falling steadily over the last decade, will rise.
Job insecurity and a lack of flexible roles are making it difficult for people to pay for retirement by working for longer. Many people in low-paid jobs were concerned that they would be less capable of doing manual work as they grew older, and weren’t confident that their employer could offer retraining or more suitable work.
People of different life stages and generations have different attitudes towards saving and retirement. People aged under 35 were likely to cite debts, for example student loans, and high rents as reasons that they struggle to save. Those who were able to put money aside said that they would put their savings towards a housing deposit before paying into a pension fund. Younger workers said zero-hours contracts, reduced hours and high youth unemployment were limiting their ability to save.
Those born between 1965 and 1979 highlighted the high cost of raising a family as a barrier to saving, with many feeling that there was a trade-off between saving for their pension and short-term saving, for example for Christmas or a summer holiday.
Baby boomers, the oldest of whom have already reached state pension age, said that the high cost of household bills made it difficult to put money aside. People in this age group have benefitted from more affordable housing and more generous employer pensions, but numerous changes in successive Governments’ pensions policy have left some unsure how to plan for retirement. This generation is also helping younger relatives to save for a housing deposit or care for young children, which has an impact on their own ability to save or work longer.
Julia Unwin, Chief Executive of the Joseph Rowntree Foundation, said: “Older workers are trapped between a rock and a hard place. The high cost of bills means that many are unable to save more for retirement, while a lack of opportunity to gain new skills or progress at work is making it difficult to work for longer. Unless action is taken, these problems could continue into the future as the high cost of housing and childcare make it difficult for those who are further away from retirement to save.
“Auto-enrolment will help people to put money aside but this research shows that there are still barriers stopping many from working longer or saving more. Unless these barriers are removed and action is taken to essential costs then there is a risk that poverty among older people will rise, undoing years of positive work to reduce pensioner poverty."
Nigel Keohane, Research Director of the Social Market Foundation, and co-author of the report:
“With the Government set to report the outcomes of its review into pension tax relief in the March Budget, this research shows just how varied the challenges of funding old age are for people of different generations and income. But, there are helpful steps the Government could take that the public would support, whether this is giving a larger chunk of pension tax relief to those on lower incomes or introducing methods to automatically increase pension contributions as workers earn more.”
Suzanne Hall, Research Director at Ipsos MORI, said:
“Policymakers need to recognise that, when it comes to preparing for later life, both lifestage and generational differences matter. This means that it is unlikely that one single solution will help people better prepare for later life and, instead, a range of responses such as those explored in this research will be required.
The research also asked people what support Government and employers could offer to enable them to save more or work for longer. It found that people supported:
- Auto-escalation, where employees pay a greater proportion of their earnings into their pension if they get a pay rise, with three in five people (60%) supporting increasing their contributions up to 15% of their salary as their earnings rise.
- Half (47%) of people supported changing the tax relief system so that lower-earning workers receive a greater contribution from the Government and those on higher salaries get a more modest one, compared to a quarter (25%) of people who opposed this. This finding comes just months before the Chancellor is set to announce the outcome of the review of pension tax relief in the March Budget.
- More than half of people supported workers over 60 being given the right to demand flexible (57%) or part time (53%) hours, and 58% supported subsidised training for workers in this age group.
To help ensure that people are able to save more or work longer, JRF calls for:
- Action to simplify pensions. Many people said that they found some parts of their pension, for example tax relief, difficult to understand
- Action from employers to make sure that, where possible, they offer flexible jobs and training opportunities to fit around caring responsibilities and help people to stay in work longer
- Action from Government, businesses and regulators to keep bills as low as possible and make sure that markets work for all consumers
- A greater supply of new homes to rent or buy to help bring down the cost of housing