Auto-enrolment: pensions are getting better, but nobody knows it
Guest blogger Graham Boffey of Aviva looks at the benefits of auto-enrolment to our pensions, and why so few of us even know it's happening.
How many of us have thought about what we will live on in retirement recently? Probably very few if we are being honest; it is just not as compelling a topic of conversation as house prices are for most of us. But, like it or not, we all need to be putting money aside and thinking about saving for when we stop working if we want to enjoy a comfortable retirement.
Greater life expectancy and the impact of inflation have all contributed to the average pensioner’s income being below a ‘comfortable’ level. Recent figures from Aviva show that the UK pensions gap is estimated at being over £10,000 per person, per year.
The issue is that the state pension system was just not designed to deal with so many people in retirement, and we are not saving enough ourselves. Successive governments have wrestled with this and have struggled to find a solution to this growing problem. But soon – in the next few months – arguably the biggest shake-up to UK pensions for more than 100 years will start to be rolled out.
From October this year, the UK’s largest employers will be required to automatically enrol their employees into workplace pension savings scheme for the first time, and over the next few years this will impact on every worker earning more than £8,105 a year. Employers will be required to pay into a workplace retirement savings account for each employee, unless you decide to opt out.
For something this big, it is worrying to find that more than two-thirds (68%) of private sector employees have little or no understanding of automatic-enrolment. But even more of a concern is that Aviva’s Working Lives report found 37% of employees say they will opt out of the scheme, with 49% of saying they simply just can’t afford it.
At present, while the majority of people agree that a pension is the best way to save for retirement (56%), and a similar number say their employer already offers a workplace pension (54%), the number of private sector employees actually saving into a workplace pension is comparatively low at 35%.
The reasons why this is low again comes down to money, with 55% of employees saying they don’t have the spare cash to contribute to a pension, 28% saying they need to repay debts, and 20% need to pay for immediate family costs. As such, while the Government will be keen to reduce the number of potential opt-outs before auto-enrolment goes live, we cannot expect to see a step-change in the way people save for their retirement immediately.
The message that people need to start to understand is that you need to be saving now for retirement if you want to be able to enjoy a ‘comfortable’ lifestyle . It doesn’t need to be huge amounts at first, but the earlier we begin the savings habit the more likely we are to carry it through the whole of our working lives and the more chance we have of a comfortable retirement.
The onus is on the Government, the industry and employers to explain the benefits of auto-enrolment. However, if you don’t feel that you understand or have had it explained clearly to you then you need to ask for more information – whether it’s online, from family and friends or from a financial adviser.