Many of the UK’s leading cities are heading towards high levels of pensioner poverty and a culture of have and have-not for those in retirement, as millions fail to take up company pensions being offered, according to new research from Capita’s employee benefits business, Bluefin Corporate Consulting. The findings warn that, whilst new government legislation will help nudge more people into saving for their retirement, businesses must be ready for its financial impact.
Across ten of the UK’s biggest cities on average over one third (36%) of employees are not currently enrolled in their company’s pension scheme, despite being eligible to do so. The situation is at its most severe in Birmingham, where over half (53%) of employees have not taken a company pension, followed by Glasgow, with four in ten (43%) not enrolled. Edinburgh has the highest take up in the UK, with 8 in 10 (82%) people saving into a pension at work.
For those people who do contribute, a respectable level is being saved between employer and employee; on average the equivalent of 11% of salary. Despite a low level of uptake, Birmingham workers have a high level of contribution, on average 12%, compared to Glasgow at 8%, the lowest in the survey. Again, it is workers and employers in Edinburgh who collectively perform best, saving the equivalent to 13% of salary into a pension each month.
Robin Hames, Head of Technical, Marketing and Research at Bluefin, commented:
“The human and social cost of low levels of pension take up is significant. For many who have not accepted their company’s offer of a contributory pension they will be reliant on the welfare state in retirement and possibly in need of financial help with housing and care.
“What’s striking is the disparity between cities. Edinburgh has a very high proportion of pension savers whereas Birmingham is storing up future issues, given that less than half of workers are saving for their retirement – despite the opportunity to do so. For a city such as Birmingham, if nothing is done there will be a retired population in which half have saved a decent amount for retirement and half have not. That’s a lot of financial and social inequality for a city to deal with. However, we believe that as businesses begin auto-enrolling staff into pensions these regional inequalities will start to be addressed and reduced.”
From this month businesses will put in place the biggest changes to pension law in a generation as employers put all eligible employees into a company pension by default. With automatic enrolment now underway, Bluefin is urging businesses to ensure they are fully prepared for the time and cost that will be required as enrolling eligible workers becomes compulsory for them.
“Businesses need to be preparing now for the huge changes auto enrolment will bring, particularly in cities where take-up rate for pensions is low. It’s likely that the majority of these workers haven’t joined a scheme yet due to apathy, rather than deliberate choice. This poses a significant communications challenge. It is vital that employers explain the auto enrolment process to their staff, so employees can make an informed decision.
“However, as well as letting all their staff know about the new rules, businesses must also prepare financially for the fact that the number of employees enrolled in the pension scheme could increase dramatically.”
The Bluefin research also revealed that Edinburgh and London are the only major UK cities where employers make above average contributions, but employees contribute less than average. The data shows that in London, employers pay 7% into pension schemes for their employers, while in Edinburgh businesses pay 10.2%; employees pay just 3.8% and 3.2% respectively.
Robin Hames commented: “This suggests that employees in London and Edinburgh are relying on their employers to secure adequate retirement provision, contributing relatively little themselves. It may be that firms in these cities, both of which are financial centres and home to a number of large, international companies, are forced to be more competitive on issues such as pensions and benefits to attract the talent they require.”
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