Wider pensions reform needed to tackle pension savings shortfall

Published at 00:01 AM on 30 September 2015

  • PwC research shows that six in ten people are put off saving more into their pension because they don’t understand the system
  • PwC suggests that the pensions system needs to be simplified to strengthen the incentive to save
  • Without greater incentive to save, PwC analysis shows people could face a £4,000 per year shortfall between their pension savings and desired retirement income
  • Tax reform alone won’t tackle savings shortfall. Saver awareness, auto-enrolment contribution levels and financial education need to be part of any solution

PwC research reveals that someone starting work today aged 22 will need to save a total of 15% of their annual salary towards their pension in order to reach their desired retirement income. If they don’t increase their current contribution levels, they could end up with a £4,000 per year shortfall between their pension savings and desired retirement income.

PwC surveyed 1,200 working UK adults about their retirement plans and understanding of the pensions system and found that one of the biggest barriers putting people off saving more into their pension is that they don’t understand the system. Nearly six in ten (59%) people surveyed by PwC say their lack of understanding of the pensions system puts them off saving more into a pension. The impact is even higher for women (63%) and younger workers (64%). In addition, only 15% of those surveyed say that tax-free contributions are an incentive to save towards their pension.

The research reveals that people, on average, would like a retirement income of £22,200 per year. For 18 to 34 year olds, the target retirement income is £23,100. Londoners’ expectations are the highest, at £28,700 a year. But the majority of people won’t reach this level based on their current contribution levels.

The survey respondents are only saving an average of 5% of their salary towards their retirement and contribution levels are not increasing with age. Only one in 20 people surveyed are contributing more than 10% of their salary to their pension and this tends to be people earning over £100,000 a year. Average employer contributions according to PwC’s survey, are just slightly higher than employees at 6%.

For the pensions system to act as an incentive to save, PwC suggests it needs to simplified, use language people can relate to and include a broader package of measures than tax reform.

Raj Mody, head of pensions consulting at PwC, said:

“It is clear that many people’s expectations of their pension pot and the reality at retirement will be very different as people simply aren’t contributing enough to their pensions.

“Any system that is asking people to lock up their money for many years needs to be simple to understand, trusted and sustainable to encourage greater savings levels. It also needs to include a strong up-front incentive.

“Our survey suggests that the pensions system in its current form isn’t incentivising people to save.”

Philip Smith, head of defined contribution pensions at PwC, said:

“We see various routes to simplifying the current pensions system so that it acts as a much-needed savings incentive. One option is to introduce a single rate of tax relief on pension contributions. This may also cause less disruption to pensions, as the system is being tweaked rather than completely overhauled. Another option is a system where people are taxed on the money they put into their pension, but they receive an up-front contribution from the Government and their pension would be tax-free in retirement.

“Reforming pensions tax alone isn’t going to dramatically impact people’s motivation to save more towards their retirement. Efforts need to focus on improving saver awareness, increasing auto-enrolment contribution levels and improving financial education so people can plan for the retirement they hope for. The Financial Advice Market Review is an opportunity to make quality and affordable advice available for all and we believe technology should be at the core of the solution.”


Notes for Editor:

  1. PwC commissioned Opinium to survey 1,197 working UK adults from 31 July to 3August 2015. Results have been weighted to nationally representative criteria.
  2. The analysis is based on the below assumptions and everything is expressed in today’s real terms.








£17,500 starting salary, assumed to increase by 5% each year (2.5% of which is inflation)

Office of National Statistics

Employee pension contribution

5% of salary

PwC survey of 1,197 UK adults

Employer pension contribution

6% of salary

PwC survey of 1,197 UK adults

Investment return

6% per annum



2.5% per annum


Desired retirement income

£23,000 per year

PwC survey of 1,197 UK adults

State pension

£7,717 per year

Department for Work and Pensions





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