Just 28% of UK family heads are actively paying into a workplace pension(1)
However, 74% of families would be happy to contribute to a scheme if their employer matched their contributions
Only 15% will opt out of auto-enrolment - but there are some concerns
Families are viewing auto-enrolment as a positive step towards bridging the pensions gap, according to research from the second Aviva Family Finances Report. Three quarters (74%) of family heads say they would be happy to contribute to a scheme if their contributions were matched by their employer.
This comes in contrast to the fact that the majority of UK family heads(1)(72%) do not currently contribute to a workplace pension, citing affordability as a major barrier. However, the report also suggests that almost all (96%) families do have some disposable income after essential purchases each month, which indicates affordability might not be the only obstacle.
The findings were revealed in the second quarterly report from Aviva, which has been designed to better understand its customers, specifically the financial issues faced by the 84% of the UK who live as part of a family(2).
The majority of UK family heads (72%) do not belong to a workplace pension scheme either through choice (20%), ineligibility (4%), a lack of knowledge (11%) or because their employer does not offer one (43%). For the one in five who choose not to belong, 40% say they simply can't afford to (see below for further reasons).
Reasons behind not belonging to an existing workplace pension scheme
|
Reason
|
Overall
|
Full-time
|
Part-time
|
Men
|
Women
|
|
Can't afford to
|
40%
|
35%
|
55%
|
31%
|
46%
|
|
My company has not told me enough about it
|
16%
|
18%
|
15%
|
28%
|
10%
|
|
Worried about return on investment
|
10%
|
13%
|
3%
|
6%
|
13%
|
|
I have not got around to it
|
10%
|
12%
|
5%
|
9%
|
11%
|
The age of auto-enrolment
With the Government confirmation that auto-enrolment will be implemented from 2012, the report looked at people's reactions to this. Just 15% of people would choose to opt out when auto-enrolled - with more men (17%) than women (14%) of this opinion.
However, while there was much positive sentiment, the findings revealed that significant education needs to be done about the existence and benefits of the scheme. Indeed, 20% had no real thoughts on the issue and 12% were worried that auto-enrolment might not be right for them. Affordability continues to be a concern for families as 16% expressed concern as to how it might impact on their take-home pay.
Relatively small contributions can add up
When questioned about auto-enrolment, 74% of families said they would be happy to contribute some of their salary if this sum was matched by their employer. The most popular amount was 5% of annual salary (23% of respondents) followed by 2% and 3% of annual salary (10% and 3% of respondents respectively).
A 5% contribution of the typical (median) UK salary of £25,879 could equate to a pension pot of £252,438 over a 44 year working life (taking into account matched employer contributions, inflation and investment growth). The current average annuity pot is less than £30,000 and this therefore suggests that auto-enrolment could be a significant step towards reducing the UK's pensions crisis.
Annual Pension Saving for Median UK Salary Earner (£25,879)
|
% of salary contributed
|
Contribution by employee
|
Total over 44 year working life (assuming matching employer contributions)
|
|
|
Monthly
|
Annual
|
Total pension pot using Aviva's pension calculator
(as of 9 May 2011)
|
Monthly retirement income, including state pension*
|
|
1%
|
£22
|
£259
|
£51,716
|
£572
|
|
2%
|
£43
|
£517
|
£103,428
|
£773
|
|
3%
|
£65
|
£776
|
£155,140
|
£939
|
|
4%
|
£86
|
£1,035
|
£206,852
|
£1,104
|
|
5%
|
£108
|
£1,294
|
£258,564
|
£1,269
|
|
6%
|
£129
|
£1,553
|
£310,276
|
£1,435
|
|
7%
|
£151
|
£1,812
|
£361,988
|
£1,600
|
*Using Aviva's pension calculator assuming no tax-free cash is taken at retirement. Figures given are only estimates, fund values could be more or less than this, that fund values can go do as well and the value of a pension fund could be worth less than has been paid in.
Paul Goodwin, head of pensions marketing, Aviva, said:
"The UK is facing one of the largest pensions crises in Europe(3)so it is vital that we consider what can be done now to help customers plan their retirements for the future. As the Government has recognised by its planned auto-enrolment programme, workplace pensions have a significant role to play in meeting this challenge.
"There is much work to be done though as only 28% of UK family heads are currently paying into a scheme. And while many people cite affordability as a reason for not joining, our research suggests that for many funds are available, but are often prioritised elsewhere.
"A lack of understanding around pensions is also seriously hampering take-up rates, so for the long-term interests of families in the UK, all parties concerned - the government, product providers, employers and employees themselves - need to work hard to ensure that auto-enrolment is a success."
