More than three-quarters (79%) of professional financial advisers believe that pension auto-enrolment and the current minimum savings amount is giving people false hope around their retirement savings, according to Skandia’s latest Adviser Insight Survey*, which obtained the views of almost 700 financial advisers.
More than half of those surveyed (57%) feel that auto-enrolment will have a positive impact on the public’s awareness of the need to save for their retirement. However, the low levels of minimum contributions could lull people into a false sense of security if they think this is all they need to save for retirement, creating potential to leave another generation of savers with a nasty shock when they come to review their retirement plans.
Current legislation dictates that the minimum amount contributed to an auto-enrolled pension can be just 2% of gross salary (to be lifted in 2018 to 8%). This is some way below what is generally accepted to be the amount required to secure a financially-comfortable retirement.
The survey shows that 88% of advisers believe it is the responsibility of the Government to educate people about the need for sufficient income provision in retirement. After the Government, just over half the advisers questioned placed equal responsibility on themselves (59.7%), and the public (57.6%).
Opt-out rates for auto-enrolment pension schemes are currently around 9%, with 1.6m people joining workplace pension schemes through this route in the last year, highlighting the scale of the future issue.
Adrian Walker, pensions expert at investment business Skandia, comments:
“While we would applaud the Government for pressing ahead with auto-enrolment and raising the public’s awareness of retirement planning, we think more work needs to be done to avoid another generation sleep-walking into a retirement crevasse.
“The difficulty is that auto-enrolment sits nicely between a rock and a hard place. Yes, it won’t provide much in the way of a retirement income, but the debate shouldn’t just be on increasing contributions, it should be on educating people into taking responsibility for their own retirement. Increasing the minimum contribution level risks more people dropping out, but people should be made aware of the funding gap they will have in retirement, and be encouraged to make additional payments.”
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