Pension contributions set to go up, but most don’t realise – study
One in four are still unaware of auto enrolment
PEOPLE PAYING into workplace pensions will have to increase their contributions over the coming years, but for many the extra outgoings will come as a shock, a new study suggests.
More than two in three people in Yorkshire – 69 per cent – are blissfully unaware that they will have to start paying more into their workplace pension, the latest Scottish Widows Workplace Pensions Report has found.
But despite this lack of knowledge about the mechanics of the initiative, more than four in five people in Yorkshire (86 per cent) say they will stay enrolled – only 2 per cent saying they will opt out when contributions increase.
Currently, the minimum contribution to a workplace pension is 2 per cent of an employee’s earnings – half coming from the employer and half from the employee and the government, in the form of tax relief.
But from April 2018, the minimum will 5 per cent, with 2.4 per cent coming from the employee, 0.6 from the government, and 2 per cent from the employer. A year later, in 2019, the minimum will rise to 8 per cent, with a 4:1:3 employee/government/employer split.
Remarkably, while awareness of auto-enrolment has increased markedly, from 39 per cent in 2012 to 76 per cent in 2016, nearly one in four of us (24 per cent) still knows nothing at all about it.
Younger workers (22- to 29-year-olds), however, are more aware, and twice as likely as the rest of the nation to save more into their workplace pension.
Despite this, the research reveals that overall, many are still not saving adequately for retirement, including over two-thirds (35 per cent) of people working for large businesses, almost half (49 per cent) of those working for medium businesses and 56 per cent of employees in smaller businesses.
Over a quarter (26 per cent) of people in Yorkshire say they can’t save any more into their workplace pension due to financial pressures.
Younger people are most likely to be prevented from saving due to a lack of understanding, with a quarter (24 per cent) of 22- to 29-year-olds and more than one in 10 (13 per cent) 30- to 39-yearolds giving this as the reason.
The younger generation (22- to 29-year-olds) is also twice as likely as the rest of the nation to save more into their workplace pension if they had more information from their employer (14 per cent versus 7 per cent on average).
What’s more, more than one in three (36 per cent) of those aged 22-29 and 31 per cent of 30to 39-year-olds think an employer who offers a pension scheme should also offer advice on how to budget for retirement.
Younger generations place a high value on employer contributions to their workplace pensions. Those aged 22-29 and 3039 are the most likely of any age group to choose to save into a company scheme because their employer contributes too, at 60 per cent and 58 per cent respectively.
David Holton, director of workplace propositions at Scottish Widows, said: “Young people, in particular, appear disengaged with workplace savings but the good news is that they are twice as likely as the rest of the nation to save more if they had more information from their employer.
“As a result, the industry and employers alike need to continue encouraging all workers by providing them with ongoing support on the benefits of being more engaged with longer-term savings.
“The Financial Advice Market Review [which published its final report in March 2016] aims to help consumers access such advice, presenting many opportunities for the industry.
“We should also be mindful of using advances in digital technology when it comes to plugging knowledge and engagement gaps, especially when it comes to younger workers. The longer these workers can save, the better their position will be when it comes to securing a financially stable income for later life.”
The longer workers can save, the better their position will be David Holton, Scottish Widows