Pension savers are missing opportunities to boost their retirement income when they get pay rises, pay off their mortgage or see their children leave home, new data shows.
Automatically upping minimum employee contributions to workplace schemes for higher earners is one way people could add to their pension pots around major life events, the Institute of Fiscal Studies (IFS) has suggested.
“Very few” savers are pushing any extra money into their pension schemes, according to a report published by the group.
The IFS has suggested several improvements to workplace pensions, mortgages and other financial products to prompt people to save more into their pensions.
One change could be to introduce higher minimum employee contributions for higher earners – “auto-escalation” – with default pension contribution rates increasing alongside rises in earnings.
Mortgage providers could also show customers how much of their mortgage repayments they could divert into their pension when their mortgage term ends, the IFS suggested.
The report found that people find they have fewer spending commitments and more disposable income at various stages in life, such as paying off a mortgage, getting a pay rise, or seeing adult children leave home and become more financially independent.
But the IFS said older employees in particular could be missing out on opportunities to use such events to boost their retirement income.
The research, funded by charitable trust the Nuffield Foundation, indicated there was little evidence of people increasing their pension contribution rates by a significant amount upon paying off a mortgage.
Looking at the relationship between pay and pension saving, the report’s authors wrote: “We find changes in earnings still have a small effect on pension participation in 2019-20, except for when they lead to someone earning at least £10,000 a year and their employer therefore being required to enrol them automatically into a workplace pension.”
Laurence O’Brien, a research economist at the IFS and an author of the report, said: “Many employees might baulk at the idea of devoting more of their pay cheque to their pension in today’s high-inflation environment.
“But when people do have extra cash available, either because of a pay rise, paying off their mortgage or their children leaving home, very few employees put any of this extra cash into their pension.
“Given concerns that many private sector employees are at risk of under-saving for retirement, a natural question is whether changes to public policy could help them increase their pension saving when it makes more financial sense to do so.
“For example, higher default employee pension contribution rates at higher levels of earnings, particularly above the higher-rate threshold, or at older ages could help many make better saving decisions.”
Tim Gosling, head of policy at People’s Partnership, provider of the People’s Pension, said: “This research shows just how much people’s retirement savings behaviour is shaped by decisions taken for them, not by them.
“Whether people save is strongly influenced by automatic enrolment and how much they save is shaped more by the generosity of their workplace pension contribution structure than by their earnings.”