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While automatic enrolment has improved pension participation, challenges remain in ensuring adequate contribution levels and addressing the affordability concerns of lower-income workers, research from the Pensions Policy Institute (PPI) has found.
The PPI's report, sponsored by Phoenix Insights, showed that the UK pension landscape has undergone "significant transformation" in recent years, particularly due to the introduction of automatic enrolment, and the rise of defined contribution (DC) schemes.
However, the PPI clarified that while overall pension coverage has expanded dramatically, the shift from defined benefit (DB) to DC has brought new challenges at the same time.
In particular, the PPI found that affordability of pension saving remains a key issue, especially for lower-income households, where pension contributions can exacerbate financial pressures.
In addition to this, it found that certain demographic groups face a heightened risk of being under-pensioned and experiencing poor financial outcomes in retirement.
While average pensioner incomes have risen over the past two decades, largely due to the state pension’s triple lock and growing occupational pension incomes, this increase has not been evenly distributed and relative pensioner poverty has also worsened.
At the same time, the composition of pensioner incomes has shifted, with a greater reliance on private pension provision and a relative decline in the share of income derived from benefits (including the state pension).
Although this trend signifies growing independence from state support, according to the PPI, it also highlights the widening income disparity among pensioners, underlining the need for targeted interventions to address rising poverty in this demographic.
Despite the complexity of retirement decisions and the growing need for financial guidance, the PPI also found that engagement with pension planning, guidance and advice remains low, raising concerns about how well individuals are preparing for retirement.
Given this, it argued that addressing these issues will be "crucial" to supporting retirees in navigating the financial challenges of later life.
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