This month has marked the final auto enrolment staging date for small employers. With concerns that the current contribution level is not enough to produce an adequate level of income in retirement, Jonathan Watts-Lay, Director, WEALTH at work comments on what employers can do next.
Recent research from Wealth Wizards revealed that poor retirement planning could mean up to 6 million UK employees are working well past retirement age. The lack of retirement preparation seems to be due to the fact that employees are not receiving the education necessary to make smart investment choices for their future. A study from the Chartered Institute for Securities & Investment (CISI) revealed Over half (56%) of workers who are contributing to a pension don’t know how much they are paying into their pension each month. For those who were aware, the median amount paid monthly into their pension pot by workers was £120, with maximum of £164 paid monthly by 35-44 year olds and the minimum of £50 paid monthly by 18-24 year olds.
Nealy 1 in 3 workers are now over the age of 50 according to the ’Working Late’ report by Wealth Wizards. Only 1 in 8 (13%) said they would be able to retire when they wanted to as they believed they had saved and planned appropriately for retirement. Almost half of workers who hope to retire (45%) believed their standard of living would decrease in retirement, with 38% feeling their standard of living would stay the same (39% of 18-24 year olds) whilst 8% felt it would increase during retirement (18% of 18-24 year olds).
Jonathan Watts-Lay, Director, WEALTH at work, a leading provider of financial education, guidance and advice in the workplace, comments;
“Recently the PLSA called for lifetime average contributions on all earnings of 12% a year and we would support that.
We would also like to see some form of auto-escalation, so when a member gets a pay rise they automatically increase the percentage they are paying until they reach a level that is likely to produce an adequate income.
Whilst AE has been a great success in getting people to save into pensions, if the member gets used to paying at 8% they may believe this is the ‘right’ number and not consider paying more.
Often employers will match to higher levels yet their default contribution is in line with AE requirements and members will and do miss out. Our experience is that there are many schemes where employees could take advantage of more ‘free money’ but don’t understand the benefits on offer.
Financial education can ensure employees realise how valuable workplace pensions are and highlights why opting out could be a mistake.”