A 'whole life' approach to financial wellbeing, in which pensions saving is considered alongside the financial wellbeing of households before retirement, is needed, Nest Insight has argued.

The comments were made after research from Nest Insight found that no single default rate of contribution into pensions will suit everyone, higlighting the potential risks of increasing auto-enrolment contributions for lower earners in particular.

The analysis, which was supported by Phoenix Insights, used modelling of optimal savings rates to look at 30 saver personas to identify what the right approach could be for people on different incomes.

This revealed that while there does seem to be a case for raising the standard level of contributions for people earning around the national median, the picture is far less clear for those earning less than £2,000 per month.

Whilst Nest Insight stressed the importance of everyone having enough for a decent standard of living after retirement, it admitted that, for these people, other savings structures, such as workplace emergency savings, could create an alternative way to balance financial security through their working life.

Lower earners were not the only point of concern, as the research suggested that default rates for above-average earners should get them to a decent standard of living but should not be set too high, as many will have other sources of income that will make up a shortfall.

Commenting on the findings, Nest Insight director of analysis and governance, Matthew Blakstad, said: “Many people aren’t saving enough for a smooth transition into retirement – but household incomes vary hugely, and many people’s working incomes are already lower than living standard-based benchmarks.

"If default contribution rates into pensions are raised, people on lower incomes could face real trade-offs with current living standards. Our new modelling provides further evidence that financial security should be balanced both before and after retirement.

“The future for pensions auto enrolment should be considered alongside other measures to support households through their financial lives, such as workplace emergency savings."

Blakstad also highlighted the research as evidence that the financial health of households can be a building block for broader economic growth.

"People who have financial resilience today are more likely to save more for the future – and this in turn creates more investment in the broader economy, as well as reducing money-related mental health issues and sickness absence, and increasing productivity," he explained.

"We would like to see progress towards lifelong financial security for households, as part of a wider strategy for economic security and growth at the national level.”

Adding to this, Phoenix Insights director, Catherine Foot, said: “The long-standing question of ‘how much is enough’ for retirement can be complex.

"People’s lives vary hugely and the broad-brush approach to determining savings adequacy can often overlook the day-to-day experience of individual households.

"Age, sex, periods of non-earning, divorce, childcare responsibility and housing costs are just some of the many different characteristics and circumstances that influence household finances and consequently people’s ability to save.

"Millions of adults are unknowingly heading for retirement financially unprepared, so by understanding the factors that make the biggest differences to people’s saving ability, both policy-makers and individuals will be better equipped to take action to improve future retirement outcomes.”

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