In the third of our new guest blog series on insecure work, Shelley Morris (Living Wage Foundation), explores how financial insecurity impacts people beyond their working lives and into retirement, and calls for a Living Pension.

The cost-of-living crisis is affecting everyone, but no one is hit harder than the lowest paid and those in insecure work. Over 350,000 workers are paid the real Living Wage by over 11,000 employers, and a growing number are now offering security of hours alongside this.

But many workers in severely insecure work are not even getting the national minimum wage and the Work Foundation’s UK Insecure Work Index has shone a spotlight on the scale of severely insecure work in the UK. Severe insecurity in the labour market describes situations where multiple forms of work come together that have no guaranteed hours, or that are low paid or have unpredictable pay, or that afford lower access to employment rights and protections. In 2022, 4.6 million employees (excluding self-employed) in the UK experienced severely insecure work.

Lack of workers’ rights also means those experiencing insecure work are likely to be excluded from workplace pensions and face an uncertain future. With low contribution levels already an area of concern, there are still many workers without any pension provision at all, who will struggle to meet the real cost of living in retirement.

Who can access workplace pension benefits?

It is ten years since the introduction of ‘auto enrolment’, requiring all employers to enrol workers over 22 and earning above £10,000 into a pension. This was a huge policy success and increased the proportion of workers saving towards a pension from 47 per cent in 2012, to 77 percent in 2019.

This did not benefit everyone though, as these rules only apply to those that are employed. There was a breakthrough on this in 2021 when the Supreme Court ruled that Uber’s private hire drivers be classed as workers. This resulted in Uber creating the first pension scheme for flexible private hire drivers, and they have called on all gig economy companies to do the same. This would be a huge step forward in bridging the gap of pension savings for insecure workers.

Participation is only the first step though, and ‘auto-enrolment’ was only ever meant to be the start. For many with little to no savings to build on, the minimum contribution level (8% of qualifying earnings) will probably not provide enough to be able to live with dignity and security in retirement.

How much is enough?

To tackle the question of adequacy, the Resolution Foundation completed a feasibility study on creating a ‘Living Pension’ in 2021. They assessed the level of income that might be needed in retirement to meet the real cost of living, along the same lines as the Living Wage. This was then used to calculate annual contribution targets based on age.

Earlier this year they looked at actual pension saving in the UK, to see how this fared against the targets. They found that four in five workers enrolled in defined contribution pension schemes (16 million people) are not saving at levels which are likely to deliver an acceptable standard of living in retirement. Lower earners are particularly impacted with less than 5% of those on the lowest incomes saving enough to meet a Living Pension target (this research excludes those with Defined Benefit pension savings where the pension outcomes are known and not dependent on individual saving levels).

Where are pension savings lowest?

The UK Insecure Work Index found one in three people working in the hospitality, services and agriculture sectors are in severely insecure work. Similarly, when looking at sectors, the Resolution Foundation found that hospitality had the lowest proportion of savers meeting a Living Pension target level (39 per cent), compared to the finance industry (91 per cent).

Further disparities were found in age and hours in relation to pension participation. In 2020, 62 per cent of workers aged 20-29 were savers compared to 75 per cent aged 40-49. When looking at security and number of hours, 79 per cent of full-time workers and 69 per cent of workers with a permanent contract were savers in 2020 compared to 39 per cent of part time workers and 33 per cent of workers with a temporary contract.

What can employers do to tackle this?

At the Living Wage Foundation, we are testing a Living Pension standard with employers. This has required looking at pension contribution structures through the lens of low paid workers, and whether contribution levels are likely to achieve a retirement income to meet the cost of living.

In a tight labour market with high vacancies, many employers are looking for ways to differentiate themselves and retain staff by offering more than the auto enrolment minimums. We want to work with those employers already going above and beyond and pave the way for more employers to do the same.

By setting a Living Pension that is simple and accessible, we aim to bring greater transparency, understanding and confidence to pensions, and build on the work of the Living Wage, providing security and stability for workers now and in the future. Beyond this, we would hope to see insecure workers brought into pension saving by strengthening the tests for employment status, as recommended by the Work Foundation.

The Living Wage Foundation is the organisation at the heart of the movement of businesses, organisations and individuals who campaign for the simple idea that a hard day’s work deserves a fair day’s pay.

Shelley Morris, Senior Project Manager, Living Wage Foundation

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