Figures highlight challenges for auto-enrolment and the savings industry as pensions take-up levels off at age 35
One in seven people aged 55-65 are approaching retirement without a private or workplace pension according to new findings from Aegon’s Readiness Report.
This means 1.21 million people are approaching retirement age with nothing to supplement their state pension while the figures are even more pronounced among women, 20% of whom have no savings for retirement between the ages of 55 – 65 compared to 12% of men.
The research found that the number of people without a private pension drops dramatically as people enter the workplace. This demonstrates the effect of auto-enrolment as many people benefit from employer pensions, but uptake then plateaus right up till retirement age. In the early stages of people’s working life, 41% of those aged 18-24 do not have a pension. This figure drops considerably to 16% among those aged 25-34 and remains stubbornly persistent at an average of 16% right up to age 65.
Commenting on the figures Kate Smith, Head of Pensions at Aegon said: “Auto-enrolment which launched in 2012 as the Government’s flagship policy to increase the number of people saving for retirement, has undoubtedly been a success. To date 7.5million2 employees have been enrolled into a workplace pension scheme and for many of these people, this will have been their first pension. However, as our figures show, there is a portion of the population who either feel unable to or are unwilling to save for retirement. This may include those who are self-employed or in the ‘gig’ economy and those employees who do not meet the earnings or age criteria for auto-enrolment. Others may consciously opt out of a workplace pension perhaps for affordability reasons or simply not recognise the benefits of pensions over other forms of saving.
“There’s also likely to be a portion of people who prioritise a house purchase above other long term saving. The size of deposits required now can mean it takes longer to get on the property ladder, which will have a knock-on effect to freeing up cash to save in a pension.
“Our findings show how critical it is that the review of automatic enrolment brings more people into its scope and that we find equivalent nudges to help the self-employed and gig economy workers save for pensions as the default.”
Those without pension savings are likely to be reliant solely on the state pension, as they may have no other savings. For those entitled to the full amount from the new single tier state pension, this is equivalent to an income of £8,297 per year, and, in the main, it will no longer be possible for spouse’s to inherit their partner’s pension.
Kate Smith continues: “Saving a modest amount can really add up over the years and the good news is that a £100 pension contribution for example costs you much less than its face value. This is because the government gives people a bonus so a £100 contribution only costs a basic rate tax payer £80 in take home pay, and the government then tops up the pension by £20. If your employer is prepared to ‘match’ your contribution then this could be just £40 from you, £10 from the government and £50 from your employer, making pension saving more affordable than you think.”
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