In less than a decade, auto-enrolment has turbo-charged retirement planning with 10 million people now saving into a workplace pension[1]. The level of adequate savers – those putting away the recommended minimum 12 per cent – has reached a record high of 60 per cent, largely because of AE.
Relying on savers doing nothing, AE has also had a powerful effect on the UK’s younger workers. More than half of 22-29-year-olds are now saving adequately for retirement – a significant increase of 11 per cent on last year’s figures (from 40 per cent to 51 per cent). This is also a massive increase on the 30 per cent who were saving adequately in 2017, when Scottish Widows first began tracking the nation’s young savers.
But many of the UK’s youngest savers are still excluded from the benefits of AE. Despite assurances from the Government that they would lower the AE threshold, savers aged between 18 and 22 are still missing out on vital employer contributions towards their retirement.
Covid-19 puts record saving levels in jeopardy
Many Brits are still risking a retirement in poverty, with two in five failing to save adequately and 15 per cent not saving anything at all. More than half (54 per cent) of people continue to worry about running out of money in their retirement, a fact not helped by the impact of Covid-19 on their personal finances.
Separate Scottish Widows research conducted in the midst of lockdown revealed that one in four people are concerned about their ability to pay for essentials because of the outbreak, while more than 3.7 million have reduced or stopped saving into their pension entirely as a result.
Pete Glancy, Head of Policy at Scottish Widows, said: “Auto-enrolment has transformed the retirement prospects of millions, giving everyone a better chance to retire in safety and security. Young people in particular have benefited by saving through AE, alongside record levels of employment and inflation-busting wage growth before lockdown. However, we shouldn’t be celebrating prematurely as we are still seeing the nation’s youngest savers excluded from these benefits (18-22-year-olds).
“We also recognise that the next 12-18-months is going to be about businesses and individuals getting back on their feet. With the impact of AE having plateaued, now is the time for policymakers to focus on cohorts of the population, like young savers and those hardest hit by Covid-19, who are not yet benefiting from the current system and need effective solutions to help them save for the future.”
Calling for flexibility during crisis
Long before lockdown began, Scottish Widows has been calling for a single lifetime savings pot to be introduced, which would be funded through an extension of automatic enrolment. Its modelling predicts that, with higher contribution levels, savers could withdraw £1,000 up to three times during moments of financial crisis, or take out 50 per cent of their early savings for a deposit on their first home, and would still be better prepared for retirement than they are today.
Savings not an equal playing field
This year’s report also shows that twice as many people from ethnic minority backgrounds who have a pension and are not yet retired have reduced or stopped pension savings during the current situation than the rest of the UK. Cuts to income and already low savings mean their future finances are among the hardest hit by the economic fall-out of Covid-19.
The disproportionate impact is expected to increase as before this crisis, those from ethnic minority backgrounds were already more likely to face a financial shortfall in retirement. Just over half (55 per cent) were saving the recommended minimum, versus 60 per cent of the wider population.
This may be linked to the fact that almost one in five (18 per cent) people from ethnic minority backgrounds work multiple jobs, compared to 13 per cent nationally. In total there are 6.8 million ‘multi-jobbers’ in the UK, who can unfairly miss out on pension contributions because their income is split across different employers which sees them fall short of the minimum earnings threshold for automatic enrolment.
Despite the Government having previously committed to scrapping this rule and basing contributions on an individual’s full earnings, this hasn’t happened yet and as such there remains a significant number of employees excluded from the benefits of auto-enrolment. Making this change could see these worker’s contributions increase by up to 60%, making a real difference to retirement prospects.
Pete Glancy, Head of Policy at Scottish Widows, said: “We must face up to the fact that the pension system unfairly penalises those who are in low paid work. Scrapping the minimum earnings threshold would allow millions of multi-jobbers, which include some of the hardest working and most financially vulnerable members of society, to benefit from auto-enrolment like everyone else, and is long overdue.”
Other at-risk sections of society facing financial collapse include the self-employed, part-time workers and renters
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