Defined Contribution Pension Saving: Part 1 - Using Behavioural Economics to Promote Retirement Saving
Document ID: 2007-728 (previously RR 082)
Published on: 1st August 2007
Author: Alistair Byrne, Phil Mowbray, Nick Jessop
Automatically increasing pension contributions by 1% a year for five years could boost retirement incomes by up to a half. This report shows that a 25 year old with pension contributions at 10% of salary could expect a pension worth 42% of final salary on retirement at 65. But increasing contributions by just 1% a year for five years could enable the same individual to receive a pension worth nearly two thirds (62%) of final salary. This research also suggests that if such increases were automatic, few savers would opt out. This paper reflects a concern that people saving in Defined Contribution (DC) pensions are not saving enough. The Government’s proposed system of Personal Accounts, whilst boosting the number of savers, would lead to contribution levels as low as 8% of salary. A contribution of 8% would leave the average saver from the age of 25 with a pension worth only one third (34%) of final salary.
