Tory cost of living crisis risks pension shortfall for future retirees

In a major speech to the TUC, Shadow Work and Pensions Secretary Jonathan Ashworth will warn the Tory cost of living crisis risks creating a pension shortfall for future retirees, while creating a tax windfall for the Treasury.

Ashworth will highlight the extent to which, despite the success of auto-enrolment, today’s cost of living crisis means working-age adults are not able to save enough for their retirement revealing new data that shows average pension pots have fallen for young people over the last decade.

This leaves around a quarter of workers projected to be below a minimum standard of retirement income and half below a moderate standard. 

A moderate income amounts to £20,800 a year including State Pension. Workers would need to have around a £200,000 pension pot above the full state pension to achieve this but the average wealth of pensions not yet in payment across all ages and pension types is currently under £40,000. 

As the Office for Budget Responsibility last week warned that people will make use of earlier withdrawals to manage the rise in the cost of living this year, Labour will today accuse the Government of “taxing tomorrow’s pensioners while failing today’s pensioners” as new analysis of OBR data shows that the Treasury tax take from people withdrawing their pensions early is set to rise by fifty per cent.

Over 55s are now due to pay £9 billion in tax across the next five years to access their pensions early, compared to £6 billion over the previous five years, creating a tax windfall for the Treasury, who have so far failed to address the cost of living crisis facing older people.

With the number over 65s set to rise to 13 million over the next decade, Ashworth will pledge that the next Labour government will put in a place a ‘strategy for ageing’ with security for today’s and tomorrow’s pensioners at its heart.

Delivering the keynote speech at the TUC Pensions Conference, Labour’s Shadow Work and Pensions Secretary, Jonathan Ashworth MP, will say:

“Retirees of today and tomorrow both deserve security. But after the twelve years of Conservative government, they have both been failed and pensioner poverty is on the rise.

“Boris Johnson has broken the consensus on pensions by abandoning his promise on the pension triple lock and from April retirees face the biggest real-terms cut in the pension for fifty years.

“The Tory cost of living crisis is so severe that younger workers are left struggling and unable to put aside enough. Meanwhile the OBR is now ringing the alarm bell that people in their 50s struggling are forced draw down their defined contribution pension early to help survive, putting at risk a sustainable retirement income.

“This is a ticking time bomb with today’s Conservative cost of living crisis baking in a crisis for tomorrow’s pensioners.

“Britain should be best the place to grow old in so the next Labour government will introduce a strategy for ageing with decent pensions with security and opportunity for older people at its heart.”

ENDS

Notes to editors:

Jonathan Ashworth will be speaking at the TUC’s pensions at 10am on Wednesday 30 March. More details: https://www.tuc.org.uk/events/tuc-pensions-conference-2022

• Analysis of OBR data, published alongside the Spring Statement, shows that the tax receipts from the use of pensions flexibilities are set to be £9bn between 2022 and 2027. Between 2016 and 2021, tax receipts from the use of pension flexibilities were just over £6bn.

OBR, ‘March 2022 Economic Fiscal Outlook, Supplementary Charts and Tables, Chart A.3:  Successive forecasts of tax receipts from the use of pensions flexibility’, 23 March 2022,

https://obr.uk/

• Tax receipts from the use of pensions flexibilities are forecast to be £1.8bn for this financial year, compared to an outturn of £1.2bn in 2020/21, a rise of 50%.

OBR, ‘March 2022 Economic Fiscal Outlook, Supplementary Charts and Tables, Chart A.3:  Successive forecasts of tax receipts from the use of pensions flexibility’, 23 March 2022,

https://obr.uk/

• On pension flexibilities, the OBR said it “assumes that people will make use of earlier withdrawals to manage the rise in the cost of living this year”.

OBR, March 2022 Economic and Fiscal Outlook, pg. 216,

https://obr.uk/docs/dlm_uploads/CCS0222366764-001_OBR-EFO-March-2022_Web-Accessible-2.pdf

• Analysis of ONS statistics on Pension Wealth show that the median wealth in pensions not yet in payment across all ages and pension types has fallen in real-terms by 13% since 2010-12. Between 2010-12 and 2018-20:

Analysis of ‘ONS Statistics on Pension Wealth, Table 6.8: Individuals with wealth in pensions not yet in payment (active or preserved), summary statistics by age and pension type’, 7 January 2022,

https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/datasets/pensionwealthwealthingreatbritain

• The Pension and Lifetimes Saving Association estimate that a single person is projected to need an income of £10,900 to meet the minimum retirement standard and £20,800 for a moderate retirement standard.

Pensions and Lifetime Savings Association, ‘Retirement Living Standards’, accessed March 2022,

https://www.retirementlivingstandards.org.uk/

• It estimates that a quarter of employees are currently not likely to achieve at least the minimum standard and “around half of employees are projected to have an income between minimum and moderate”.

Pensions and Lifetime Savings Association, ‘Retirement Living Standards’, accessed March 2022,

https://www.retirementlivingstandards.org.uk/

• The number of over 65s is set to rise to almost 13 million over the next decade, 22% of the population.

Centre for Ageing Better, ‘The State of Ageing 2022’, March 2022,

https://ageing-better.org.uk/sites/default/files/2022-03/State-of-Ageing-2022.pdf 

• Estimates of a pension pot required above the full state pension in order to achieve a moderate retirement standard above are based on Hargreaves Lansdown annuity estimates.

Hargreaves Lansdown, ‘Annual annuity income from a £100,000 pension’, accessed March 2022,

https://www.hl.co.uk/retirement/annuities/best-buy-rates