 By Lynn Graves, Head of Corporate Pensions Business Development, Scottish Widows
The implementation of auto-enrolment has initially seen employees of the UK’s biggest companies, those with 120,000 employees or more, automatically entered into their workplace pension schemes. This will gradually be extended to all other employers over the next five years and this encouraging development means pensions providers and employers around the country are working to educate savers on the changes they can expect to their corporate pensions.
Despite the far-reaching nature of the new legislation, the Scottish Widows Workplace Pensions Report 2012 recently revealed that 52 per cent of workers – almost 10 million people in the UK –are completely unaware of the impending changes.
The issue is not opposition to automatic enrolment; on the contrary 61% of people who are aware of the scheme view it as a positive move and just one-in-ten workers plan to opt out.
Nor is it that people are unwilling to recognise the importance of planning for retirement.The average amount that workers are willing to pay into a workplace pension scheme has in fact doubled since last year, increasing from £37.50 to £76.95 a month. For some time now, our pensions research has shown that people are increasingly taking notice of, and responsibility for, retirement planning. There has been a substantial and encouraging shift inunderstanding the payment levels required to achieve a good standard of life in our older years. However, low awarenessof a significant development like automatic enrolment illustrates the residing problem that the importance of pension schemes is still not recognised.
The challenge is twofold. Firstly,pensions messaging and communication needs to be clear, and free from industry jargon and, secondly, attitudes to retirement saving need to be improved.
Employers would seem best-placed to communicate the impact of the new legislation to their staff but, worryingly, only 16% of those who are aware of auto-enrolment found out about the changes through their work. Instead, a full 61% of people say they only learnt about the scheme through the news and media. The fact that the media has had to play such a pivotal role in educating people about the changes highlights how much further work is required from the pensions industry, employers and government to ensure that auto-enrolment is a success.
Auto-enrolment is designed for people who traditionally don’t have access to a workplace pension scheme, such as employees of smaller companies or those with lower incomes, yet awareness is particularly poor amongst these groups, with only a third of employees on an income of under £20,000 per annum conscious of the upcoming changes. It’s clear that the information is not reaching those it’s intended to target, and establishing the right channels and format to educate workers should be treated as a priority by both government and employers as full implementation is brought in.
The second part of the problem is the huge gap which remains between expectations of retirement and the actuality of saving, with saving levels significantly below the level required for a comfortable income in later life. There are stark differences between the aspirations people have for retirement and the amount they are likely to receive from their pension. The Scottish Widows Pensions Report, which was published earlier this year, showed that the average saver retiring at 65 would receive just over half the amount they feel they need.
A willingness to contribute and recognition of the need to take responsibility for pension planning will only make an impact when it turns into action and people begin to save. We may be slowly waking up to the reality of funding retirement, asjust 2% of people without a pension believe that the state will provide a sufficient income to see them through old age, but there is still substantial work to be done.
Auto-enrolment should go some way to increasing the number of people with minimal pension provision but will not be enough to fully address the savings deficit in the UK and to ensure that people prioritise savings over spending and other financial commitments. 32% of people who plan to opt out of auto-enrolment state that the main reason for this is a concern they won’t be able to afford the contribution. Similarly, even with increased level of monthly contributions, 33% of people believe that their workplace pension won’t be enough to provide them with an acceptable standard of living in retirement.
In order to deliver on worker’s expectations, the pensions industry has to create innovative solutions which help employers comply with auto-enrolment and enable workers to better plan how much they need to save for retirement. Scottish Widows has recently been working with Jelf, an employee benefits and pensions advisor, to communicate the changes and wider information on retirement savings. Jelfdelivers presentations which outlinepensions products and the impact of auto-enrolment to workers in companies which use Scottish Widows plans. Admiral, the insurance operator, recently saw the number of employees enrolled in their corporate pension increase from 1,100 to 2,000 in 6 months after running this scheme, illustrating the influence that clear and jargon-free information can have on encouraging saving amongst employees.
The reform of the UK savings culture must continue to be a priority for the industry, government and employers and good education and information can have a significant impact on habits. Only by recognising the issues, and helping savers to change their behaviour, can we hope to address the problems which will face future generations in old age and ensure timely preparation for retirement becomes the norm.
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