New research from the Pensions and Lifetime Savings Association (PLSA) found that automatic enrolment will deliver improvements for millions of people – but there's still room for improvement.

The report, Retirement Income Adequacy: Generation by Generation, analysed the incomes for different generations – from so-called baby boomers to generation X, and millennials.

It found that of the 25.5 million people in employment, 1.6million are still at high risk of falling short of a minimum income standard (MIS) in retirement; and 13.6million are still at risk of not meeting their target replacement rate (TRR).

Millennials, or those born in the 1980s and 1990s, will be the first generation to experience the UK pension system as intended by the reforms of the last decade, including saving over a full working life through automatic enrolment.

To achieve TRR, millennials will need to make higher pension contributions and work slightly longer than previous generations.

By contrast, many in generation X, people born in the 1960s and 1970s, did not save into a pension in their early working lives.

Although many are now automatically enrolled, their pension contributions alone are unlikely to close the gap, and they are likely to need to work longer and utilise other assets to generate a higher retirement income.

Some baby boomers, those born in the years following World War Two, have a very good retirement income, but others are poorer by comparison.

Those without a defined contribution pension will be mostly dependent on the state pension, while others have some wealth in property.

Graham Vidler, PLSA director of external affairs, said the research showed that automatic enrolment will deliver a tangible improvement in the retirement incomes of millions of people, but there is still work to do.

He said: "For younger savers increasing their automatic enrolment contributions from 8% to 12% and working slightly longer puts them on track for their target replacement rate.

"For older workers, who have less time to save, achieving their target replacement rate may also require a choice to save more and using other assets, such as property, if they have them."

Vidler said it is clear from the analysis that minimum contributions under automatic enrolment need to increase to at least 12%.

First published 25.11.2016

Lindsay.sharman@wilmingtonplc.com