Commentators and trade bodies, from Adair Turner to the Association of British Insurers (ABI), have argued that the British people are saving insufficient amounts for their future pensions. The ABI, for example, has estimated there is a £27bn a year shortfall for pension provision. Adair Turners Pensions Commission used this argument to justify the view that the public does not treat pensions savings rationally.
Congdon argues that these views are flawed at a basic level as they consider only pensions saving and not overall saving. Ultimately all saving must be drawn down in retirement or passed on to relatives as a bequest. However, it does not follow that we will save for our future pensions using formal pensions vehicles. Changes in regulation, the tax treatment of pensions and a decline in large corporate pension schemes may have reduced saving in pensions vehicles without reducing overall retirement saving. Congdon regards the neglect of this point as an elementary blunder by Turners Commission.
When judging whether retirement will be adequately funded, economists should look at the savings ratio of the nation as a whole not just savings in pensions vehicles. The UKs national savings ratio has been stable for many years at between 15 and 18 per cent of national income and this leads to a level of saving broadly sufficient to meet most peoples retirement needs. There is no black hole, no savings gap in the British pension system.