Savers lose out from pension auto-enrolment

More than six million high-earning savers are not putting aside enough for retirement as employers cut back pension arrangements. Official analysis found four in ten employees eligible for auto-enrolment are “undersaving” as the increased cost to employers means packages are scaled back.

MORE than six million middle-class savers are failing to put aside enough for a comfortable retirement, the Government has admitted.

Experts issued a warning over the “high risk” to savers as employers scale back the generous pension arrangements their employees once enjoyed.

Analysis published yesterday by the Department for Work and Pensions found that four in 10 employees eligible for auto-enrolment, its flagship saving scheme, are “under-saving”.

Of the 12 million not saving enough, more than half are middle and high earners with incomes of more than £34,500 in the run-up to retirement.

The findings are the result of a study into the success of auto-enrolment, which was introduced in 2012 to ensure every worker had access to a basic company pension.

Tom Mcphail, the head of policy at Hargreaves Lansdown, a pension firm, said that although the policy had helped lower earners, it had left wealthier savers at a “high risk” of a retirement crisis.

He said: “The Government needs to find ways to bring contribution rates back up again or people on higher salaries are at a high risk of sleepwalking into a retirement where they cannot afford to maintain their lifestyle.”

Under the auto-enrolment scheme, savers must put away a minimum of 8 per cent of their annual salary, which is made up of employer, employee and government contributions.

In the first four years, the overall number of workers under-saving fell from 14million (45 per cent) to 12million (38 per cent) individuals, the report said. However, there are growing fears the increased cost to employers means that existing benefits packages, which let staff save more than 8 per cent of their salary, are being scaled back.

Since 2012, the number of employees facing a reduction in the level of pension offered by their employer has nearly doubled from 6 per cent to 10 per cent, the report said.

The DWP defines an “under-saver” as being on track to fail to maintain a similar standard of living in retirement to that they enjoyed during their working life. Higher earners are more likely to be under-saving because their state pension income will replace a smaller proportion of their working salary.

A spokesman for the DWP said: “Automatic enrolment has transformed the way people save, with more than nine million now enrolled into a workplace pension. But we know many still aren’t building up enough savings, and we have already legislated for increasing contributions in April 2018 and again in April 2019.

“Our review also looks at how people’s engagement with their workplace pension may be improved so they have a greater sense of personal ownership of their savings so they can plan for later life.”