Millions are lef t in the dark about their meagre pensions

Workers aren’t saving enough for retirement, experts warn

MILLIONS of workers could be sleepwalking into a povertystricken retirement because they are not paying enough i nto their pensions.

Average contributions to company retirement schemes have almost halved in a year, worrying figures show.

Experts warn that many employees are putting aside a ‘completely inadequate’ amount.

The problem is partly the result of new rules under which most workers are automatically enrolled in a company pension scheme without having to sign up. But they may not realise that the basic contribution level is only 2 per cent of their salary – 1 per cent each from the employer and employee.

Many wrongly assume that because they are in a scheme they will have enough income in old age.

Tom McPhail, of Hargreaves Lansdown, warned: ‘ They haven’t thought about how much they will need in future, where their money is invested or how they are going to withdraw when they retire.’

The new automatic enrolment rule helped to increase the number of workers in company pension plans by 2.5million between 2013 and last year. But it meant average contributions to defined benefit schemes plummeted from 9.1 to 4.7 per cent over the same period.

Mr McPhail said a worker in their mid30s on a £28,000-a-year salary who had just been automatically enrolled would end up with a retirement income from that pension of just £3,100 if they did not increase their contributions above the basic 2 per cent level.

This income dropped to just £2,320 a year for a 45-year- old who had just joined the scheme. He said the system had created ‘ a paradox’, adding: ‘The Government is getting people into pensions and that is a good idea.

‘But it means that everyone is in a pension without thinking about it.

‘The challenge now is, how do we bridge across between people being automatically enrolled and individually engaging? There’s a huge amount still to be done there.’

Pensions consultant Malcolm McLean, of Barnett Waddingham, said it was ‘worrying’ that contribution levels were so low.

He said: ‘Given there are hundreds of thousands of people joining pension schemes it is perhaps not surprising numbers have increased but contributions have reduced.

‘It does show the complete inadequacy of contribution lev- els. What we need to do is to try to encourage people to actually contribute more and more.’

But he added that it was ‘good news’ so many workers were now enrolled in schemes, including those who previously were ‘not doing anything’ about preparing for their retirement. Alan

‘Completely inadequate’

Higham, of PensionsChamp.com, said: ‘We are at the very start of filling in a big hole in retirement savings.

‘The good news is there are millions more new savers – however saving just two per cent of pay won’t gi ve adequate i ncome.’ Andrew Tully, of Retirement Advantage, said: ‘Many people are living much longer and for many people an increasing proportion of later life is being spent in ill-health.

‘This leads to the need for greater and more f l exible income to help pay for care in the home, or residential care.

‘Automatic enrolment is gradually increasing the numbers of people saving for their retirement through a pension.

‘However, despite being aided by employer contributions, the overall payments will produce relatively s mall savings for many.

‘This combination of more people needing retirement income for a longer period and having to f und care costs, together with (less generous pension) schemes, means there is a huge need to encourage greater pension saving.’ Automatic enrolment began in October 2012 and has been gradually rolled out since then.

It applies only to employees earning over £10,000. A total of 30.4million workers were members of workplace pension schemes last year.

A Department for Work and Pensions spokesman said: ‘Automatic enrolment continues to make good progress.

‘This will help to ensure that working people have the support they need in place to save for retirement and be better off in later life. We want workplace pension saving to be considered as the norm and something that all good employers and their staff want to be part of.’