More than half of UK workers remain “completely unaware” that they will be automatically enrolled into workplace pension schemes, a process that begins for the largest employers next month, according to new research by Scottish Widows.
According to the Edinburgh-based investment firm’s latest Workplace Pensions Report, 52% of workers – the equivalent of 9.9 million people – display an “alarming lack of awareness” of the impending reforms, with this particularly poor amongst lower-earning workers. Scottish Widows said that only 16% of those who were aware of the scheme found out about the changes from their employer, while 61% found out through the news and media.
“With just three weeks to go until auto-enrolment comes into force, it is shocking that there remains such a huge gap in awareness, and that the media has had to step in to play a pivotal role in educating people about these changes,” Lynn Graves with Scottish Widows’ Corporate Pensions team said.
“Auto-enrolment is designed for people who traditionally don’t have access to a workplace pension scheme, such as smaller employers or those with lower incomes, and it is clear that information is still not reaching the audience it’s intended to target. Educating these employees needs to be a top priority for the industry and the Government.”
The largest employers will have to begin enrolling eligible workers into a suitable workplace pension scheme, or the National Employment Savings Trust (NEST), from 1 October; while smaller employers will follow in a staggered implementation programme running until April 2017. Both employers and workers will have to make minimum contributions to the scheme once enrolled. Eligible workers are those aged between 22 and the state pension age earning over £8,105 a year.
On a more positive note, Scottish Widows said that workers who had been made aware of the scheme were “overwhelmingly in favour of it”, with only 11% of the workers surveyed planning to opt out. 32% of those planning to opt out of the scheme said that their main reason for doing so was concern that they would be unable to afford the contributions.
Pensions law expert, Carolyn Saunders of Pinsent Masons, the law firm behind Out-Law.com, said that the survey reflected anecdotal evidence regarding preparation by employers.
“The lack of awareness of auto-enrolment is concerning – the more so because it almost certainly reflects a lack of understanding amongst employers,” she said. “The anecdotal evidence is that a great many employers – including some with quite early staging dates – are unprepared for the introduction of auto-enrolment and the opt out rate amongst workers in those organisations is likely to be higher than the 11% found in the Scottish Widows survey.”
The amount that workers are willing to save in a pension scheme each month has doubled since last year’s survey, according to Scottish Widows. The average worker is now willing to pay £76.95 per month into a pension, according to the survey; up from £37.50 per month last year. However, the figures also showed that 33% of people do not believe that their pension savings will be enough to provide them with an acceptable standard of living in retirement.
Of those employees without a pension, only 2% believed that the State will be able to provide sufficient income when they retire, the survey said. 74% of those surveyed also believed that it was the responsibility of their employer to give them full financial advice and information on retirement planning.
“While it is a positive sign that people are willing to pay more into their workplace pension, substantial work must still be done to encourage people to save enough for retirement and this is a challenge for government, the pensions industry and employers,” Graves said. “As a nation we are slowly waking up to the reality of how we are going to be able to fund our retirement, many people recognising that they can’t solely rely on the State to provide the majority of their income in old age.”
Research published by the Department for Work and Pensions (DWP) last week showed that workers in the construction, distribution, hotels and restaurants and agriculture and fishing sectors were currently least likely to hold a workplace pension. Saving has fallen across all age groups, the Government said, but was particularly steep among those aged between 22 and 29. Only 24% of workers in that age group currently save towards a pension, according to the figures, compared to 43% in 1997.
Pensions Minister, Steve Webb, said that auto-enrolment would ensure that pensions did not become “the preserve of the few”.
“All workers deserve a decent income in retirement, and far too many are missing out at the moment, particularly those on low to moderate incomes who need them the most,” he said. “Next month, with the dawn of automatic enrolment, millions of workers from every industry across the country will start saving so they can secure a more prosperous retirement.”
Of the 11 million people expected to be eligible for auto-enrolment, between six and nine million will be new savers or saving more than before according to Government estimates.