Encouragingly, 3 in 4 (75%) who have a pension say that they would increase their pension payments automatically in line with a pay rise; 2 in 5 (40%) say that they plan to increase their monthly pension contributions next year, with this increasing to a half (50%) for those who said that their pension was a high priority.
The research also tested Millennials’ awareness of the planned automatic rise in pension contributions to be implemented from next year. When asked if they would continue in stay in their workplace pension if their pension contributions increased automatically: If total contribution increased to 5%, with a 3% contribution from their employer and a 2% contribution from them, nearly three quarters (74%) said they would continue to save in their pension; If total contributions increased to 8%, with the employee paying 5% and the employer 3%, then those prepared to continue to save dropped to nearly two thirds (62%). However, if the increase in contributions was to 8%, but contributions were matched, so 4% from the employer and 4% from the employee, then those willing to continue to save jumped back up to over three quarters (76%) saying they would continue to save in their pension.
Jamie Clark, Pensions Business Development Manager at Royal London, commented: "It's encouraging to see that auto-enrolment is welcomed by Millennials and that the potential concern that many would opt-out when the increases come into effect next year appears to be misfounded. Over half (57%) told us that they know that they should be saving more into a pension.” Jamie continued: “Increasing saving into a pension can seem daunting and difficult when there are other financial priorities and pressures.
It’s great to see that automatic gradual increase in contributions, perhaps in line with pay rises, is potentially viewed by Millennials as a way to help lessen the financial impact.”
A Millennial from our research, explained that she found it really tough to save for a pension when she first started work and opted-out of her first job’s pension scheme. However, when she started a new job she initially opted out but then chose to opt-in when she had a pay rise. She is taking advantage of the option to increase pension contributions in line with her salary, which is making saving for her pension much easier.
Catherine Harford said: “I’d taken a pay cut to go to this new job so trying to save any money into the pension scheme when I started just wasn’t possible so I opted-out. However, the following year I received an increase in my salary and the amount I contribute is in-line with my step-up in salary so there was no ‘real’ impact to my financial position. The money is taken from my salary before I have it and that really helps.
I’m currently on maternity leave, but when I return to work I want to continue to contribute to my pension so I’m able to take advantage of the generous contributions made by my employer. It’s silly not to take advantage of this ‘free’ money.”
This experience highlights the important role that employers have in ensuring that individuals are able to take advantage of every saving opportunity available to them, where possible. This could be matching or increasing the contributions they make to a workplace scheme they have in place for employees or allowing workers to sacrifice part of their salary or a bonus as a pension contribution.
Jamie Clark added: “Nearly a third (28%) of Millennials with a pension didn’t know what pension contributions were being made. Potentially more concerning is that they believe that the contributions being made are adequate to secure a good income in their retirement, when that is just not the case.
Providers, employers and financial advisers all have a duty to ensure employees are engaged in their future pension planning as soon as possible and fully understand the consequences of opting out of their workplace pension. And although saying they are saving, there is the risk some may still sleepwalk into poverty in their retirement by not regularly reviewing their savings and not taking advantage of opportunities to increase their pension savings when possible.”
The Government is currently reviewing how to build upon the success of automatic enrolment and how to encourage as many people as possible to save into a workplace pension. Royal London has recommended that plans need to be put in place so pension contribution levels go beyond 8% in total and that people are ‘nudged’ to put money into their pensions when they receive a pay rise.
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