Firms warned over lack of financial education, as study predicts current deficits could knock 1 per cent off pay rises
British employees should be putting an average of £10,000 a year into their pension pots in order to maintain a decent standard of living, according to a new report from Deloitte.
With employers unlikely to find the cash to raise their level of contribution over the medium term, the accountancy giant is urging the HR profession to work with pension providers to raise awareness of the growing "savings gap" between income and retirement needs.
Andrew Power, financial services consulting partner at Deloitte, said: "Education, information and engagement is the role the HR function can play, along with its pension provider."
Deloitte's report, Funding our future: Meeting the long-term savings challenge, forecasts a savings gap of £350bn by 2050 – almost £32bn more than the firm estimated five years ago. However, it added that if the population grows more quickly, the gap could reach £374bn by 2050.
The report argues that a combination of strong population growth, pressure on public spending, the closure of defined benefit pension schemes and the rising cost of healthcare are all contributing to a growing gap between what people earn and what they need to save for retirement.
"Despite welcome efforts by the Government to tackle the savings gap through auto-enrolment and raising the pensions age, challenges still exist. People are living longer; many would rather spend today rather than save for tomorrow; and few know how much they actually have tucked away," added Power.
He said HR could help raise awareness of the savings gap by helping employees engage with pensions. "It is £10,000 on average [that needs to be saved annually] so if you can encourage someone in their twenties, it will be a lower amount. People in their twenties and thirties may have enough time to save less than £10,000 a year. For people who are older, you can help them understand what other assets they have, such as housing equity, and whether they are going to use those in retirement."
He added that employers could explain that consolidating existing pensions would reduce fund management fees, and also invite independent third parties to give seminars about retirement.
The report comes as a study by the Resolution Foundation found as much as one percentage point could be knocked off annual pay rises because firms need to fill gaps in the pensions of already retired staff.
According to the report, A recovery for all?, the blame lies with retired baby boomers and employers who failed to put enough into final salary schemes. As a result, a proportion of today's workers’ wages are instead put back into schemes with deficits.
The report found that average weekly earnings grew by between 2.7 and 2.8 per cent in the three months to July, which is primarily due to low inflation, but the Foundation said that maintaining the current pace of real wage recovery will be difficult as prices start to rise again.
Matthew Whittaker, chief economist at the Resolution Foundation, said: “Prospects for stronger wage growth will ultimately rest on getting to grips with Britain’s poor productivity record, and ensuring that these improvements find their way into pay packets.”