Pension savers could be missing out on opportunities to boost their retirement income at certain key life stages, according to the Institute for Fiscal Studies (IFS).
It suggested that nudging employees to change their pension saving around major life events could have desirable effects.
The report suggested that higher minimum employee contributions for higher earners, or a form of “auto-escalation”, with default pension contribution rates increasing alongside rises in earnings, could nudge people towards saving more into their pensions.
Mortgage providers could also ask their customers in advance how much of their mortgage repayments they would like to divert into their pension when their mortgage term ends, the IFS suggested.
Paying off a mortgage, getting a pay rise, or seeing adult children leave home and become more financially independent, could be points where people find they have fewer spending commitments and more disposable income.
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— Laurence O'Brien, IFS
But the IFS said older employees in particular could be missing out on an opportunities to use such events to boost their retirement income.
Research from the IFS, funded by charitable trust the Nuffield Foundation, indicated there is little evidence of people increasing their pension contribution rates by a significant amount upon paying off a mortgage.
And looking at the relationship between pay and pension saving, the report said: “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.”
Researchers used various sources for the report, including Office for National Statistics (ONS) figures and other research documents.
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.”
