By Dale Critchley, Policy Manager, Aviva
AE has broadened scheme membership tremendously, meaning that more employees will be able to retire when they want to, as opposed to working on because they have no choice. But 2019 represents a significant challenge.
The big unknown is how people will react to the increase in contributions. Looking back, 2018’s increases haven’t resulted in any appreciable change of opt outs or people stopping contributions. So, will this be replicated next year or will 2019’s increases, set against a backdrop of Brexit uncertainty, lead to more people choosing to spend rather than save?
To test the water Aviva conducted a survey of 1178 employed people in the UK to ask them what they know, what they think and what they plan to do about the increases in 2019.
What people know
When it comes to people’s awareness of the increases next year there is pretty much an equal split. A third know all about them, a third know something and a third aren’t aware at all.
However, the proportion of people who are unaware peaks at 41% in the 45-54 age group – those who are approaching the age where they can access their pension savings for the first time.
There’s clearly work to be done on communication between now and next April.
What people think about the increases
There’s overwhelming support for the rise in contribution rates. 36% think it’s a good idea because people need to save for retirement, while another 34% single out the employer contribution increase as the main reason they support the change. Only 8% of people think the increases are the wrong thing to do, but a further 18% are worried about how they’ll afford it. This worry is more prevalent with women (19%) which may reflect the overrepresentation of women amongst lower paid and part time workers.
What people plan to do
The good news is that 55% say they will carry on paying in. 21% say they will see how the increase impacts their pay and make a decision after a month or two. Only 9% say they’ll opt out.
A surprise revealed by our data is that there is a marked difference in plans based on age. 31% of people in the 22-34 age group plan to wait and see before making a decision while 17% plan to opt out. When we look across the regions the planned opt out rate is highest in London where 16% plan to opt out.
It’s easy to see how opt out rates might rise amongst younger workers who have so many competing saving and spending priorities. But fewer millennials saving, at a time when their savings work hardest, can only serve to widen the wealth gap between the generations.
The biggest positive for me is the level of support for AE, but it‘s also clear we can’t be complacent. Good communication about the 2019 increases in the run up to next April can ensure we maximise the opportunity to persuade those who are wavering that they should do the right thing. They won’t regret it when they get to the autumn of their life.
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