Millions sleepwalking towards “less than minimum wage” at retirement

... as private sector pension contributions fall.

New figures1 confirm that private sector pension contributions are falling to minimum automatic enrolment levels, from a recent contribution high of 9.7% of salary in 20122 to just 3.4% in 2017 – with 1.2% from the employee and 2.1% from the employer.

This trend has major implications for the 9.8 million people who have been introduced to workplace pension since automatic enrolment was introduced in 20123. At automatic enrolment minimums, a typical 22-year-old would be on track for an income in retirement equivalent to just £6.55 per hour4 – significantly less than today’s national minimum wage of £7.83 per hour5.

Aviva advocates that this minimum contribution must be increased to at least 12.5% by 2028 – shared between the employer, the employee and the tax man. This would boost a typical 22-year-old’s income in retirement to an equivalent of £8.45 per hour6.

Today’s report also notes a record high number of small pension pots (“preserved pensions”) – 15.8 million. This is a 50% increase since automatic enrolment was introduced in 2012. This comes in the same week as the government committed itself to the delivery of the pensions dashboard7. The dashboard is the core means by which consumers will manage their ballooning number of small pots. Aviva has been a long-time supporter of the dashboard and today’s figures highlight the need to make urgent dashboard progress. The government’s feasibility study must include the requirement for all schemes to submit data and for state pension to be included if the dashboard is to be a success.

Millions of people are sleepwalking towards ‘less-than-minimum-wage’ at retirement.

To their credit, millions of employees have embraced auto-enrolment since 2012, in the belief that it will deliver them a comfortable retirement. But based on the current system and today’s data, they’re in for a shock, with many currently on the road to living on less than the minimum wage in retirement.

The proposed minimum saving rate of 8% of earnings, from 2019, is insufficient for millions of workers. We need to agree to further increases in minimum savings, failing to do so will bring misery to millions of workers.

Meanwhile, small pension pots are posing an equally large problem for millions of savers. This week’s ministerial statement gave the green light to deliver the dashboard, “facilitated by government”. We need to get facilitating, now!

Alistair McQueen, Head of Savings & Retirement at Aviva

In the news

Read some of the coverage this news has generated in The Daily Express, Moneywise and  Professional Pensions

1. Source:

2. Average contribution to a defined contribution occupational pension

3. Source:  

4. Assumes eligibility for full new state pension … plus pension saving from age 22 to the future state pension age of 68; average salary of £27,000; automatic enrolment employee contribution of 5% of banded earnings (including pension tax relief); automatic enrolment employer contribution of 3% of banded earnings; investment growth of 2.5% per annum (after inflation); pension charge of 0.75% per annum; and assumes 75% of private pension fund is used to purchase a single-life inflation-linked annuity at retirement.

5. For those aged 25 and over.

6. The assumptions are the same as in point 4, except the 12.5% is based on full earnings (not banded earnings)

7. Source:

Notes to editors:

  • Aviva is a leading international savings, retirement and insurance business. We exist to be with people when it really matters, throughout their lives – to help them make the most of life. We have been taking care of people for more than 320 years, in line with our purpose of being ‘with you today, for a better tomorrow’.
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