As the success of auto-enrolment continues, two in five UK workers (39%) aged 22-29 years old are now saving adequately for retirement, up from 30% last year. Despite this, more than one in five young people (21%) are still saving nothing for later life, with a further 20% saving seriously less than 12% of their income, the minimum amount recommended by Scottish Widows.
Hardworking ‘multi-jobbers’ missing out
The research also shows that nearly two million ‘multi-jobbers’ – people with more than one job – are missing out on over £90 million a year in employer contributions because of the policy on auto-enrolment thresholds. Multi-jobbers, who are often working full-time hours, are unfairly missing out on pension contributions for their overall earnings due to their income being split across different employers, thus falling foul of minimum earnings threshold for enrolment.
Scottish Widows projections, using the latest ONS figures, show that 1,831,127 multi-jobbers have at least one job that earns under £10,000 and is not enrolled in the company’s pension scheme. Based on the average salary from these jobs, collectively over £90 million of employer contributions a year could be claimed if the auto-enrolment threshold was scrapped.
Robert Cochran, Retirement Expert at Scottish Widows, said: “It’s encouraging that more young people are saving enough for a decent retirement and auto-enrolment has played a really important part. However, auto-enrolment was designed as a safety net for a country facing a pensions crisis. This year’s study shows some of the hardest working and most financially vulnerable members of society are slipping through the auto-enrolment net because of minimum earnings thresholds. This unfairly impacts multi-jobbers, who could be working the equivalent of full-time hours, yet without the financial benefit of having a single employer.”
Adequate savings levels stagnate for fourth year
Meanwhile, savings levels have stagnated across the rest of the working population. At 55%, the proportion of UK workers saving adequately for retirement has dropped slightly for the first time since 2013, falling from 56%, the prevailing rate for the last few years.
Despite adequate savings rates having risen by 10% since auto-enrolment was introduced in 2012, the stall in recent years demonstrates that a renewed effort is needed to improve the nation’s readiness for retirement.
Robert Cochran continues: “The fact that savings levels have stagnated for the last few years shows that auto-enrolment is not a silver bullet. It will be interesting to see if the step up in minimum contributions helps reverse this trend, but it doesn’t take away from the fact that the current threshold puts an unfair barrier in the way of low-paid workers and their ability to prepare adequately for retirement. We want to see it scrapped entirely to let all workers benefit from employer contributions. It’s vital that every single person in the UK is prepared for the rising costs of retirement, and removing the threshold can help to do that.
“This evidence underscores our continued campaign to make pensions more inclusive for low earners. It’s a thorny issue but only by tackling it will the lowest paid segments of the workforce have a fair chance of kick-starting their later life savings with support from their employers.”
Scottish Widows’ recommendations:
1. MAKE PENSIONS INCLUSIVE FOR LOWER EARNERS
Britons can only start to benefit from auto-enrolment when they are earning over £10,000 a year. While those earning £6,032 and above can choose to opt in, many of them are not doing so. This means lower earners, those working part-time or in multiple jobs miss out on valuable employer contributions into a pension.
The current threshold puts an unfair barrier in the way of low-paid workers and their ability to prepare adequately for retirement. We want to see it scrapped entirely to let all workers benefit from employer contributions. It’s vital that every single person in the UK is prepared for the rising costs of retirement, and removing the threshold can help to do that.
2. LOWER THE MINIMUM AGE OF AUTO-ENROLMENT
Our research shows that, while the number of younger people saving enough for retirement has risen, a significant proportion still aren’t saving anything. Lowering the minimum age for auto-enrolment to 18 – as the Government has proposed – is a great start. We want to see this introduced with urgency given these latest findings.
3. CONTINUE AUTO-ESCALATION BEYOND 8%
We know that the minimum contribution level is lulling people into a false sense of security. While this will rise to 8% next year, this will still see people saving seriously less than the 12% of their income – the minimum amount recommended by Scottish Widows. Continuing with auto-escalation beyond 8% will ensure that more workers who are auto-enrolled can build up to saving enough for the retirement they want.
4. DIGITISE PENSIONS
To encourage young people to embrace the savings habit, we need to engage with them in a way that suits them. Scottish Widows has invested £100m in digital innovation – and continues to do so. We are developing interactive digital services easily accessible on phone, tablet or computer, to help people manage their savings, and have created a series of 30 second Pensions Basics videos to help make pensions advice more accessible – with 4 million views to date.
We also believe that the pension dashboard provides a great opportunity to build confidence and engagement in planning for retirement and are calling for this to be delivered at the earliest opportunity. However, people will lose confidence in the system if some schemes or plans are missing. The priority for the first phase of delivery is for the dashboard to be fully populated with all schemes, including DB and DC schemes, Trust, Master Trust and Contract Based schemes, Workplace and Personal Pensions, Public and Private Sector pensions, along with the State Pension.
5. TACKLE THE ‘ONE-SIZE-FITS-ALL’ APPROACH TO ENCOURAGING SAVING
A one-size-fits-all approach to retirement doesn’t work. We need to recognise that age and what someone earns are not the only factors in determining preparation for retirement. Government and industry needs to move from messages targeted at the population at large to communicating directly with different cohorts in society. We are investing significant resource to tackle this issue to ensure we can help our customers when they need it most and deliver tailored support. We also see an opportunity for the new Public Financial Guidance Body, within its broader remit, to galvanise the efforts of the industry to achieve consistency and a greater impact on the nation’s savings.
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