by Sheena McBeth, Living Wage Projects Officer
For many workers, the topic of pensions is one that is complicated and hard to navigate and often put off for another day. As a result, very few people know the value of their current pension pot or how much they need to save to have an adequate standard of living in retirement.
The issue of pensions is one that is close to my own heart. As I approached 50, I took an active interest in my pension as I was unsure whether I would have enough to live on when I retired. That’s why I want to encourage employers to think about the financial security of their workers, not just now but also in the future.
Independent Age’s 2023 report on Pensioner Poverty in Scotland using research conducted by The Lines Between found that one in seven people over State Pension age live in poverty in Scotland, a total of 150,000 older people. Many people who have worked in lower paid jobs throughout their life will continue to struggle into retirement.
In March 2023, the Living Wage Foundation launched its newest standard, Living Pension to address the issue of financial insecurity in retirement. Living Pension is a voluntary savings target for employers who want to help workers build up a pension pot that will provide enough income to meet basic everyday needs in retirement.
The Living Pension standard was introduced following research commissioned by Aviva and conducted by the Resolution Foundation, the organisation responsible for independently calculating the real Living Wage. Resolution Foundation research found that 4 in 5 workers are not saving enough for an acceptable standard of living in retirement and this rises to 95% of low-paid workers.
Research was conducted in 2020 and at that time it concluded that a worker’s pension pot must amount to £70,000 plus the full state pension to ensure a basic standard of living in retirement. The Resolution Foundation has carried out further research in recent months and has produced Calculating a Living Pension: the 2024 update which determines that this figure is now £107,800 plus the full state pension.
If an employer decides to adopt the Living Pension standard the overall contribution into a worker’s pension pot needs to be 12% with the minimum employer contribution being 7% and the maximum employee contribution being 5%. As an alternative to the percentage target, employers can opt for a cash target of £2800 per annum into each worker’s pension pot. Many employers are currently adopting auto-enrolment minimums with their contribution being 3%. A recent WPI Economics report has highlighted that auto-enrolment minimum contribution rates are unlikely to provide an adequate retirement income for most savers and employers need to act now to ensure that their workers can enjoy a decent standard of living in retirement.
Living Pension must be open to all workers aged 18 and above and is based on a worker’s earnings from the first pound earned as opposed to qualifying earnings. The employer will also have a greater role to play in communicating the importance of individual financial planning to their workers.
There are currently 50 Living Pension accredited employers in the UK and 12 of these are here in Scotland and we are keen to encourage more employers to build on their Living Wage accreditation to ensure the financial security and stability of their workers in retirement. HR Manager, Emma Chambers of Clarke Fire Protection Products Ltd was keen to explain the company’s motivation for becoming a Living Pension accredited employer:
We wanted to become a Living Pension Employer as it reflects our commitment to improving the wellbeing of our workforce, both now and in the future. We believe that this not only ensures that our employees can look forward to secure retirement, but it also strengthens our reputation as an ethical and caring employer, committed to the long-term welfare of our people.
To find out more about a Living Pension and to discuss accreditation please contact me at sheena.mcbeth@povertyalliance.org