Cost of living crisis shows signs of easing as savers call for higher pension contributions

• The proportion of UK savers reporting being financially worse off than they were 12 months ago has fallen from 44% to 34% in the last year, which suggests a modest easing in cost-of-living pressures for some; while 41% of households had to make some cutbacks, reduction in pension contributions was the thing they were least likely to do.

• Around half (51%) of non-retired respondents believe workplace pension contributions should increase and over 71% of savers believe that employers could potentially contribute more to their pensions.

• Although 54% of people prefer their pension savings to support UK companies rather than companies overseas, 65% believe pension providers should continue to invest for the best possible returns.
• Around half (52%) of non-retired respondents believe that a full new State pension of £11,502 will not provide enough to avoid poverty in retirement and 73% believe the Triple Lock should be maintained.

The findings, published ahead of the PLSA's Annual Conference this week in Liverpool, highlight the tough choices individuals are making to cope with day-to-day costs, alongside concerns about pension savings, their investment options and the future of retirement security.

COST OF LIVING CRISIS EASING FOR SOME

A third (34%) of people report being financially worse off than they were 12 months ago, down from 44% in 2023, when more respondents said they were impacted by the cost-of-living crisis. Just over a quarter (27%) have seen an improvement in their financial position in the last 12 months, while those reporting no change remains steady at 39%.

Even with these modest improvements in overall financial circumstances, many people continue to feel pressure. Although more than half (58%) of the respondents have managed to avoid cutbacks or reduced expenditure, others are still feeling the pinch (41% down from 48% last year). The most common areas for these reductions include dining out (52%), and takeaways (49%) with two-fifths (42%) cutting back on leisure activities.

Despite reductions in many areas of everyday spending, payments into pensions were the expenditure area least likely to have been cut with around one in 10 reporting they had reduced or cut private pension (13%) or workplace pension payments (11%). This could reflect the importance people place on maintaining long-term savings for retirement, even amid short-term financial pressure.

SUPPORT FOR HIGHER AUTOMATIC ENROLMENT CONTRIBUTIONS

In response to concerns about the future of pensions, there is strong support for higher automatic enrolment (AE) pension contributions. Around half of those not retired (51%) believe the minimum contribution for workplace pensions should rise from the current 8% to 12% to ensure people have more savings for retirement.

In addition, many believe contributions, where employees currently pay 5% of qualifying earnings and employers pay 3%, should be bolstered more by employers. Nearly half (45%) think contributions should be split equally, with a further 43% arguing that employers should pay more than employees.

Among those paying into a workplace pension, a third (36%) say less than 12% is being paid in, while one in seven (17%) say 12% or more is paid in, with an average contribution level of 9%. However, 67% of respondents have stated that they could contribute more over different periods of time; 24% could contribute more now, 25% could not do so now but said they could over the next couple of years and 18% over a longer time frame.

This highlights the importance of pension adequacy being included in the second stage of the Government’s current review of the pensions system.

CONCERNS OVER STATE PENSION

There are also concerns about the level of the State Pension people expect to receive. More than half (52%) of employees believe a full State Pension of £11,502.40 will not provide enough to enable them to avoid poverty in retirement. A strong majority (73%) agree the State Pension should increase in line with the triple lock, and 76% believe increases are necessary to prevent a decline in living standards for pensioners.

Alongside the public’s worries about the value of the state pension, 62% of respondents are worried the State Pension Age will rise before they retire. This reflects concerns that inflation and other economic pressures could eat away the value of the State Pension and push retirement further out of reach.

KNOWLEDGE AND UNDERSTANDING OF PENSION INVESTMENTS

Despite these challenges, around half of DC savers (52%) say they trust their pension scheme to invest in the right way to get the best returns for their savings. While around three quarters of DC pension savers (76%) know that their pension money is invested, around seven in 10 (72%) do not know what their pension is invested in.

While 39% of respondents oppose government intervention in dictating where pensions are invested, many workers support socially responsible investment. Notably, 44% would prefer their pension investments to include lending money to the UK government to help fund public services like the NHS and schools, and 54% prefer their funds to support UK companies rather than companies overseas.

However, this desire to support UK companies does not necessarily hold if it comes at the cost of returns. A majority (65%) of respondents believe that pension providers should continue to invest for the best possible returns, regardless of whether the investments are in the UK or overseas.

Nigel Peaple, Chief Policy Counsel at the PLSA said: “Although many people are still feeling the effects of the rising cost of living, there are signs the peak of the crisis may have passed for certain segments of the population.

“Despite ongoing concerns about pension adequacy, over 80% of people believe their employer should contribute at least as much as, or more than, the employee. It’s essential that we act now to ensure people have enough savings for a secure retirement. This means maintaining the value of the State Pension and gradually increasing minimum AE contributions from 8% to 12% over the next decade. In doing so, contributions should be evenly split between employers and employees, helping to ease the concerns of UK savers.

“While there is a desire among savers to see pension investments supporting UK companies and public services, this should not come at the cost of lower returns. Achieving the best possible returns must remain the priority, whether those investments are in the UK or overseas. We ask that the Government strikes the right balance between supporting domestic growth and delivering strong returns for savers."

METHODOLOGY

CONSMER RESEARCH: The research was conducted on behalf of the PLSA by Yonder Consulting in September 2024 with an overall sample size of 2,100, of which 1,588 were non-retired adults.

Mark Smith, Head of Media Relations
020 7601 1726 | [email protected]

Cali Sullivan, PR Manager
020 7601 1761 | [email protected]