Data from Hymans Robertson has revealed 41% of people aged 20-40 are not saving enough to meet the minimum retirement income thresholds.
Paul Waters, partner at Hymans Robertson, said: "On average, savings rates for individuals in their twenties and thirties should be around 15% of total pay which equates to twice the auto-enrolment minimum levels. Of the 41% of 20-40 years-olds not saving enough, the average total contribution is 6%."
In an analysis of more than 360,000 defined contribution (DC) pension scheme members, Waters explained employees were reluctant to consider increasing contributions and tended to "stick with defaults". These defaults were set by the employer or trustee.
However, the data showed more people of all ages were saving for retirement with more than 90% of employees choosing to stay enrolled in pensions after automatic enrolment. Waters said: "With over 90% of employees choosing to not opt-out, more people are saving for retirement. It will be interesting to see what happens when minimum auto-enrolment contributions increase from 2017. Our expectation is that many will continue to save into their pension."
Waters also warned automatic enrolment would not be sufficient for retirement even with the total minimum contribution level reaching 8% from 1 October 2018. He said: "The bad news is, even when contribution levels increase to 8%, auto-enrolment will not be sufficient to provide an adequate level of retirement income (as measured by the Pensions Commission). This has been exacerbated by the significant reductions in state pension being introduced by the government from April 2016."
Waters urged people to start saving early. He said: "It's important that older generations encourage their younger family members to get into the savings habit early, helping them set up savings accounts such as pensions or ISAs as soon as possible. Employer facilitated savings vehicles such as DC pensions are typically the most effective starting point and should be used to their full advantage."
A minimum income threshold has been set by the Pensions Commission and is used by the Department for Work and Pensions to assess savings adequacy.