A new ‘Living Pension Employer’ standard has been introduced by the Living Wage Foundation in a bid to provide low-paid workers with financial security in retirement.
The scheme introduces a voluntary savings target of 12% of a worker’s annual salary, of which the employer contributes 7%.This, the Living Wage Foundation believes, would help employees build a pension pot that provides enough income to meet basic needs.
The target can also be met via a cash amount of £2,550 a year, based on 12% of the recommended voluntary Living Wage. The employer contributes at least £1,448 to this cash amount.
Employers that have already signed up to the standard include Aviva, Citizens UK, Good Things Foundation, Herbert Smith Freehills, Phoenix Group and Wealthify.
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A survey of more than 3,000 UK adults conducted for the Living Wage Foundation found that 55% of pension savers felt they would never be able to retire and 37% were not confident they are saving enough to fund their basic needs in retirement.
Two-thirds felt they would need to work for several years beyond state pension age to ensure they had enough money to retire.
Furthermore, Resolution Foundation research in 2022 found 95% of low-paid workers paying into defined benefit pension schemes were not saving at levels likely to achieve a basic standard of living. To meet this, a worker saving at the auto-enrolment minimum (8%, including a minimum employer contribution of 3%) would need a pre-tax salary of £38,000.
Under automatic enrolment, a Living Wage employee working 37.5 hours per week would have £1,201 going into their pension each year (with £450 coming from the employer), whereas the Living Pension would be £2,550 (with £1,488 coming from the employer).
To become a Living Pension accredited employer, organisations must ensure the principles of the scheme are applied to all directly employed staff regardless of age and earnings and, over time, third party contracted staff. New starters should be automatically enrolled onto the scheme, the Living Wage Foundation said.
Struggling to make ends meet as living costs soar, many workers are unable to prioritise pension saving, which risks storing up a future crisis of millions unable to afford even the basics in retirement.” – Katherine Chapman, Living Wage Foundation
Living Wage Foundation director Katherine Chapman said: “Low pension saving levels are a long-standing issue and our research shows that workers are worrying about an uncertain future.
“The current cost-of-living crisis is exacerbating the problem. Struggling to make ends meet as living costs soar, many workers are unable to prioritise pension saving, which risks storing up a future crisis of millions unable to afford even the basics in retirement.
“Over the last 10 years, the Living Wage campaign has grown in strength and numbers. Now paid by over 12,000 employers, it delivers essential pay rises to over 450,000 workers every year. The Living Pension builds on this by encouraging employers to do more to help their workers build a pension pot that meets basic everyday needs in retirement, providing stability and security for workers now and in the future.”
Alison Brown, executive partner at Herbert Smith Freehills, said: “Being a responsible employer is about more than ensuring staff are looked after whilst they work for you; it is about recognising that providing employees with stability and security in retirement is just as important.”
“We are delighted to have supported the Living Wage Foundation in developing the new Living Pension standards and are proud to be one of the first companies in the UK to be accredited as providing our staff with access to a Living Pension.”
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Aviva chief people officer Danny Harmer said: “By adopting the Living Pension and paying the Living Wage, organisations can help their people balance saving for tomorrow with living for today. Aviva is proud to be one of the first companies to offer the “Living Pension” to our people and, as the UK’s leading pension provider, we are encouraging our clients to do the same, so that more employees can have a decent standard of living when they retire.”
