Paul Waters, Partner at Hymans Robertson: “It’s fantastic to see today’s figures from the DWP which show that auto-enrolment is continuing to be a great success, ensuring that over 10 million people across the country are now saving for their retirement.
“Despite this obvious good news, it is not time to relax and think that this is ‘job done’. Many employees will assume that their pension contributions will provide them with a comfortable income in retirement, since the AE pension rate is being set automatically by a combination of the government and their employer. In reality, they will be dismayed to find that they simply haven’t saved enough when they come to retirement.
“Even with the further planned increase to at least 8% contributions in 2019, people will still be massively under-saving. Our analysis shows that for the majority of people, total pension contributions would need to start at 12% before you could begin to see a meaningful impact on employees’ retirement savings. You will then start to see a far greater certainty of them reaching a target income that they can live on more comfortably in retirement.
“There simply has to be more understanding on the decisions people are making about their long term savings. The PLSA’s mission to address the challenge with its ‘Hitting the Target’ campaign will encourage people to increase their savings by providing a clear and simple target. Our own experience shows that targets to be vital if employees are to reach savings levels that will provide them with adequate retirement incomes.
“It’s clear that great progress has been made in the race to get the working population saving enough. We’ve encouraged ten million people across the starting line and there is still a lot of energy to keep this going, but it’s important to remember that this is a marathon. Right now, we’ve got people signed up and underway but there is still a long way to go to ensure employees reach the end of the race with adequate savings to live on in their retirement. Collectively we have the tools to do this, we just need to use them.”
Kate Smith, Head of Pensions at Aegon, comments: “January marked a significant milestone as the number of individuals automatically enrolled into a workplace pension finally passed 10 million*. This is an amazing success, and shows what can be done when there is not only cross political party consensus but also support from advisers, employers and the pension and payroll providers.
“Since its introduction in 2012, auto-enrolment has been beneficial in kick-starting retirement savings for many employees who are entitled to not only pension tax relief on their own personal contributions, but also importantly to an employer pension contribution.
“From April 2019, the auto enrolment total minimum contribution will rise for the second year in a row from 5% to 8% meaning an individual paying in £40 a month from take-home pay will receive a £10 bonus from the Government in tax relief and £30 from their employer bringing the total amount going into their pension to £80. However, it is important to note that whilst contributing 8% of salary may seem significant, just saving the minimum amount will leave people with a shortfall in retirement and where people can they should look to save more than the minimum contributions levels.
“This is just a start, there’s much more do to encourage people to engage with their pension and make the appropriate levels of pension savings to fund the retirement they aspire to”.
*Automatic enrolment declaration of compliance: monthly report
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