Now is the time to act. Aviva estimates that every year that we wait before taking action, approximately half-a-million 22 year olds may enter the automatic enrolment arena at a level of saving that is insufficient to achieve their retirement ambitions
Participation at a new high but savings at a new low
Participation in workplace pensions amongst employees who are eligible for auto-enrolment has reached a new high of 15.1 million. Participation is up across all age groups, all income groups, all industries and all regions. The young have demonstrated a particular increase in participation, with private-sector participation in the 22-to-29 age group increasing from 24% in 2012 to 63% in 2015. This is great news.
These strong results prove that auto-enrolment is working. Auto-enrolment is getting people onto the pensions ladder, and Aviva’s research shows that this is appreciated by the vast majority. Only 10% of employees state that they do not agree with auto-enrolment.
The current pensions ladder however is too small. As more people begin climbing, the amount being saved per eligible employee continues to fall. Today’s figures report a new low for saving per eligible saver of £5,419. This is the lowest in 10 years and down £355 (9%) on last year’s figures. This is bad news.
The need to target 12.5% minimum saving
Aviva has published a ten-point plan for auto-enrolment. This includes the headline recommendation of phasing minimum contributions from 8% to 12.5% of salary by 2028. Aviva’s analysis suggests this level of saving would provide a more realistic platform on which additional retirement saving could be built. It is encouraging to note that the Pensions and Lifetime Saving Association (PLSA) and Lord Adair Turner have reached similar conclusions in recent days.
The need to help the self employed
Another of Aviva’s key recommendations is the need to help the self-employed. There are now over 4.7 million self-employed people in the UK – a new high. Today’s data, however, reports that participation in all pensions amongst the self-employed has hit a new low of 14%. In 2006/7 it was more than double this, at 31%. Aviva’s ten-point plan highlights the need to help the self-employed. It is also encouraging to note that former Pensions Minister, Steve Webb, has recently raised a similar demand.
Commenting on today’s figures, Alistair McQueen, Savings and Retirement Manager said: “2016 has been a year of surprises. While much about the future may remain uncertain it can be stated with confidence that failing to address the growing retirement savings gap in 2017 will only result in a bigger gap in the years to come.
“Over 6 million savers have positively embraced auto-enrolment since 2012 and near 300,000 employers have successfully implemented the new system. There is support and there is momentum. This must be maintained in 2017.”
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