Experts welcome tomorrow’s (April 6) move to increase pension contributions but believe that educating employees about saving must be prioritized.
Pension auto-enrolment minimum contributions will rise to eight per cent on 6 April, with a minimum contribution of three per cent by the employer and five per cent from the employee. Ten million workers are now saving into a pension since the government introduced the auto-enrolment scheme back in 2012. Staff are currently required to contribute three per cent while employers must pay in two per cent. The change in contribution levels means that the average UK worker’s pension payments are set to rise by £700 a year.
Jeanette Makings, Head of Financial Education at Close Brothers, comments:,
Auto-enrolment has transformed the savings landscape in the UK, with government and employer alike working towards solving the retirement savings gap. It’s fantastic to see previously disenfranchised demographics being more involved in planning for later life, and the low levels of opting out of the scheme are evidence that the programme has been successful for many workers.
However, we still have a long way to go. People are not saving enough into their pension for a comfortable retirement – the bare minimum will not suffice. This gap is caused by a deficiency of knowledge and interest, with a third of employees admitting to never reviewing the amount that they are saving into their pension and almost half of those approaching retirement feeling unprepared and out of their depth. Employers have a duty to support their staff, providing education about the real cost of retirement and guidance as to how to get financially ready, including saving early and often to reach your financial goals.
Emilie Bellet, Founder of Vestpod, comments.
Saving for the future can often seem like a ‘nice to do’ particularly for young people whose retirement years seem far away. But what some don’t realise is that starting early when it comes to planning for retirement is integral to having enough money when you get there. The good news is that the majority of us are already putting some money away. If you are in full time work, chances are that you will be enrolled in a workplace pension. And the contributions you and your employer will be paying into your pension are set to rise [this Saturday/ today]. Meaning more money for when you retire.
Vishal Makkar, Head of Retirement Consulting at Buck, comments,
The Government’s consultation into the Pensions Dashboard has been a long process, but today’s response finally addresses some vital issues that will make these dashboards a reality. The Department of Work and Pensions has reaffirmed its commitment to introduce legislation that will require schemes to provide consumers’ pensions data. And quite rightly too, as this should not be a pick and choose event. Including data from both private and State pensions will ensure these dashboards meet the needs of the people they are meant to help the most – pension scheme members. Now is the time for the pensions industry to work together to make sure pensions savers have access to the information they need to plan for retirement and become more engaged with their pensions.
Mark Pemberthy, Head of DC Wealth at Buck, comments,
“Despite all the worry about the rise in contributions, it’s unlikely to be a huge burden for most due to increases in earnings and tax thresholds. The impact on employees’ take home pay is minimal compared to the increased investment in their pension, and businesses are more likely to feel a sting from the rise in the National Living Wage than from funding additional contributions. The bigger issue is that most employees are still not saving enough for a comfortable retirement. So, even though all businesses need to increase their contributions, those that go beyond the minimum requirements and provide additional contributions or wider financial support will be doing far more for their employees’ future and also addressing the challenges of an aging workforce.