New findings released today show workers who will be automatically enrolled under the government’s new workplace pension reforms aspire to retire on an average of just £14,156 a year, less than half the group’s current average salary of £30,606.
The State Pension will be worth around £7,000 a year once the flat-rate pension of £140 a week is introduced, representing half of workers’ average retirement income aspirations. According to the findings, 94 per cent of workers think having more to live on than the State Pension is either an absolute minimum or a ‘nice to have’ to live comfortably in retirement.
But the report 'NEST Insight', commissioned by national not-for-profit pension scheme NEST, found that confidence in achieving even these modest goals is low and falling. Just 9 per cent of respondents think their current and future savings will be enough to provide for them in retirement, down from 14 per cent in 2011. Only half of respondents feel able to give a specific prediction about how much they’ll actually need, and of those fewer than half believe they’ll get it.
Commenting on the findings, NEST's director of communications, Graham Vidler, said:
‘The good news is that workplace pension reforms have come at the right time to help people get on the savings ladder and put something in place for their retirement. But it’s clear that many are worried about what they’ll live on and don’t feel they’re doing enough. We all have a vital role to play in helping people bridge that gap between their ambitions and their confidence for the future.’
Against the backdrop of falling confidence in retirement prospects, NEST’s research suggests pension saving is rising up people’s priority lists. In 2013 retirement saving jumped to third on the list, with only holidays and saving for a rainy day coming ahead of it as a priority. This compares to the results in 2011 when saving for retirement ranked seventh and, when asked where they would spend spare money, short term goals like socialising and going out had been higher up the priority list.
The number of people choosing to stay in their workplace pension scheme after being automatically enrolled has also been far higher than expected with opt-out rates on average less than 10 per cent. Only among older workers are opt-out rates anywhere near the previously predicted levels at around 20 per cent.
The majority (68 per cent) of people welcome the idea of being put into their company pension scheme automatically and recognise the benefits they’ll receive.
Of those who chose to stay in their scheme, 43 per cent did so because they felt it was time to start saving, while 50 per cent stayed in because they didn’t want to miss out on employer contributions. Nearly two thirds (69 per cent) of these workers now think the majority of their retirement income will come from a workplace pension.
But understanding of pensions and how they work is still low, according to the report, and may provide insight into people’s difficulty in setting expectations for the future. Only a fifth of people claimed they knew anything about pensions ‘in any detail’, although, when probed, even this basic knowledge was often flawed. 12 per cent said they knew nothing about pensions at all.
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