Eight million now in the habit of saving for retirement
With auto-enrolment legislation meaning employers have a raft of ongoing compliance duties to contend with, we asked Jamie Jenkins, Head of Pensions Strategy at Standard Life, to discuss the strides made for employees.
It is easy to fall into the trap of viewing auto enrolment as simply a legislative change, bringing about a whole host of new responsibilities for employers. Yet it is important not to lose sight of the overarching achievement in getting millions of people into the habit of saving for retirement and the opportunities that this brings them.
Indeed, recent figures from the Department for Work and Pensions show that more than eight million people have now been auto enrolled into a workplace pension. This is thanks to 500,000 employers in the UK, who have put in place a qualifying workplace pension scheme (QWPS), enrolled their eligible employees and started paying contributions.
And even though employees could opt out – around nine in ten people have stayed in their scheme. This is good to hear.
It’s fast becoming a ‘social norm’ to be in a workplace pension scheme. But now that people are in, the next stage is to increase the level of contributions being paid.
In April 2018, contributions will start to rise from their starting point of 2% of their qualifying earnings to 5%, and then in April 2019 this increases further to 8%.
Some commentators are saying that 8% is too low and people need to be saving even more. This may be true, but it depends on how much people’s regular income is while they are working and their expectations in retirement. And remember, most people will receive a State Pension of around £8,000 a year.
The first priority is to ensure we get everyone in and then get contribution levels up over the next couple of years. Many people will be feeling the effects of low, or even no, pay rises and employers are being challenged by economic conditions, along with other changes such as the minimum or living wage.
In fact, it would be easy to say that now isn’t the right time to get people saving more. But is there ever a right time? The problem is that people under saving for retirement has the potential to be a national crisis if we don’t address it, and the problem worsens the longer we leave it.
The unprecedented success of automatic enrolment can at least in part be attributed to the half a million employers committing to qualifying schemes. Their role in this savings triumph hasn’t been fully recognised, and it’s time that changed.
Standard Life is a pioneer in the workplace pensions market and is proud of leading the industry with meaningful innovations. We are a global business that manages, administers and advises on investments for our customers and clients.
About the author
Jamie has worked in pensions for over 25 years; including Operations, Product Development, Marketing, Policy and Strategy. He currently leads on strategy for Standard Life’s pension business. He is a scheme trustee and sits on a number of regulatory and trade body councils and advisory groups.
Standard Life Assurance Limited is registered in Scotland (SC286833) at Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH. Standard Life Assurance Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
© 2017 Standard Life, images reproduced under licence
This blog is one of a series of articles from our commercial partners.
The views expressed are those of the author and not necessarily those of ICAS.