More DC savers than previously thought are heading towards a retirement with “inadequate savings” because DC adequacy models are overlooking some major factors, according to PTL.

The independent trustee and governance services provider argued that key factors being overlooked included a decline of homeownership that will leave more people paying rent after retirement, educational debt inhibiting people’s ability to save for the future, and long-term health costs.

PTL also listed savers inheriting less due to pensioners paying for long-term care and financial fragility as overlooked factors.

PTL managing director, Richard Butcher, said: “DC adequacy models make assumptions about all sorts of things, including certain lifestyle and social factors, the problem is that many of those assumptions are out of date. As a result, we are over-estimating the levels of adequacy those members will achieve.”

He stated that failing to fix the models would leave the industry with “many more unhappy members” and “more members living below the standards of living to which they aspire”, with more pension savers potentially living in retirement poverty.

Butcher added that this “human tragedy” could also “cause significant damage to the brand of pension saving which has already suffered reputational issues over the years”.

He concluded: “While it’s tempting to think employers or the government will step in, at the moment this looks unlikely. The impact of Brexit and Covid on some employers has made it impossible for blanket increases in contributions, and the government will need to focus what few resources it has left on growth generation.

“On the positive side, the pension system is becoming progressively more efficient which means incremental gains can offset the impact of these factors. Auto-enrolment also helps, although the contribution rate remains too low for it, alone, to fix the problems. What would make a material difference is an increase in contributions. We need to aim for around 12 per cent of all earnings.”

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