Dynamics in private pension saving across the income distribution
Lead Research Organisation:
Institute for Fiscal Studies
Department Name: IFS Research Team
Abstract
How much people save for their retirement is extremely important. It matters not only for individuals' wellbeing but also for society in general because those with insufficient private savings are more reliant on government benefits. It is increasingly important because people are living longer. Various policy levers are used to encourage retirement saving. Most notably, there are large tax advantages to pension saving that have been changed in various ways in recent years. In 2012, the government began to roll out pension auto-enrolment, a policy through which employers are required to put most of their employees into a workplace pension scheme and contribute towards it. This has led to almost 90% of eligible employees saving in a pension.
Despite policy action, there are ongoing concerns that some groups are not saving enough for their retirement. The self-employed are a particular concern because they are much less likely to invest in a pension and, when they do, they save less than employees. There is no equivalent to auto-enrolment for the self-employed but government are actively looking at policy options.
It is important to understand the patterns of pension saving across different groups in society and the role of various policies in shaping decisions.
This project will provide insights in this area by using comprehensive information on pension contributions held by HMRC, the tax authority. Specifically, we will use data on all pension contributions made either by individuals or their employers to personal pensions, and link this to individuals' (anonymised) tax records. The later provides information on how much income a person has and how that income is generated. We will be able to track people over time, thereby observing, for example, how pension saving changes as income and the policy environment changes.
We will be creating the first and only dataset that provides a comprehensive picture of how much money people are putting into personal pensions. The best available survey data are incomplete because they: cover only employees (not the self-employed or those not in paid work); has limited information on people over time; does not cover pension contributions made outside of a workplace; records people's earnings but not their total income (which is particularly important for many of those on the highest incomes). The data we will create will include employees as well as the self-employed, people working for their own companies and those not working. We will capture all contributions to personal pensions and have detailed information on total income.
We will use the data to document the pension savings of employees and the self-employed, including how pension contributions change as people move from employment to self-employment. The self-employed have been the fastest growing part of the UK labour force since the early 2000s. Around 15% of the UK workforce is now self-employed but there is much churn in this population -many enter leave self-employment each year. We will study whether auto-enrolment has changed the saving habits of people who were auto-enrolled as an employee and went on to be self-employed. This will provide important evidence on the channels through which auto-enrolment operates and will inform the design of policies to encourage saving among the self-employed.
With the new dataset established for research, there will be opportunities to address many other important policy questions, including, for example, how various aspect of tax policy affect how much different types of people chose to save in a pension and their wider investment and economic choices.
Despite policy action, there are ongoing concerns that some groups are not saving enough for their retirement. The self-employed are a particular concern because they are much less likely to invest in a pension and, when they do, they save less than employees. There is no equivalent to auto-enrolment for the self-employed but government are actively looking at policy options.
It is important to understand the patterns of pension saving across different groups in society and the role of various policies in shaping decisions.
This project will provide insights in this area by using comprehensive information on pension contributions held by HMRC, the tax authority. Specifically, we will use data on all pension contributions made either by individuals or their employers to personal pensions, and link this to individuals' (anonymised) tax records. The later provides information on how much income a person has and how that income is generated. We will be able to track people over time, thereby observing, for example, how pension saving changes as income and the policy environment changes.
We will be creating the first and only dataset that provides a comprehensive picture of how much money people are putting into personal pensions. The best available survey data are incomplete because they: cover only employees (not the self-employed or those not in paid work); has limited information on people over time; does not cover pension contributions made outside of a workplace; records people's earnings but not their total income (which is particularly important for many of those on the highest incomes). The data we will create will include employees as well as the self-employed, people working for their own companies and those not working. We will capture all contributions to personal pensions and have detailed information on total income.
We will use the data to document the pension savings of employees and the self-employed, including how pension contributions change as people move from employment to self-employment. The self-employed have been the fastest growing part of the UK labour force since the early 2000s. Around 15% of the UK workforce is now self-employed but there is much churn in this population -many enter leave self-employment each year. We will study whether auto-enrolment has changed the saving habits of people who were auto-enrolled as an employee and went on to be self-employed. This will provide important evidence on the channels through which auto-enrolment operates and will inform the design of policies to encourage saving among the self-employed.
With the new dataset established for research, there will be opportunities to address many other important policy questions, including, for example, how various aspect of tax policy affect how much different types of people chose to save in a pension and their wider investment and economic choices.