Contact

News & Insights

Auto-Enrolment increases number of savers, but are they saving enough?

Participation in a pension scheme has increased most among young workers (2017 saw 63 per cent of workers in the private sector aged 22-29 paying into a defined contribution pension, compared to just 16 per cent in 2012) and those on lower salaries, most of whom had no active workplace pension before AE was introduced.

While it is obviously positive that more people than ever before are putting money away for retirement, the data from the ONS has also raised some concerns that the sums people are saving still may not be enough to enable comfortable retirement income, and some might be in for an unpleasant surprise if their contributions do not rise much beyond the minimum, legally required level.

Initially, the minimum contribution was 2 per cent of a worker’s qualifying earnings, which included the employer’s contribution of 1 per cent. In April, this rose to 5 per cent and will rise again to 8 per cent next year, of which the employer must pay at least 3 per cent. The ONS said that the level of contributions “clustered” at these lower levels, meaning that many workers will not have saved a sufficient sum when they reach retirement age.

Sir Steve Webb, director of policy at Royal London and former pensions minister commented that, though encouraging to see the number of pension savers increasing, it is too early to start celebrating as a “combined contribution rate of 8 per cent between worker and firm is simply not good enough for most people”.

Webb went on to say that the AE scheme will have to do more to support workers and employers if contributions are to rise to more “realistic levels”, such as ensuring that people’s contributions increase automatically whenever they get a pay rise, so that today’s workers aren’t “unable to afford to retire”.

Similarly, Alistair McQueen of Aviva believes that the minimum level should be increased further to be nearer to 12 per cent.

So, while saving at the minimum amount is better than not saving at all, it’s possible that Auto-Enrolment is leading people into a false sense of security, as many workers in the scheme may not realise that the amount they’re putting into their pension pot isn’t enough.

Pension savers in the UK can do much to take a more active role in their retirement planning. The first thing to do is to undertake a pension planning review with a financial adviser who will be able to assess your pension pot and offer suggestions for maximising your funds, particularly if you are a member of a number of schemes with relatively small sums.

A pension review can help you understand what sort of income you could look forward to in retirement and also suggest ways to enhance this, perhaps by making a pension transfer into a more beneficial scheme such as a SIPP, or QROPS for expats.

Blacktower’s financial advisers can help. Contact us today to find out how to boost your pension savings and look forward to a more financially secure retirement.

This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.

Other News

Planning for a Long Retirement in Spain

PaellaPeople across Europe and the Western world are living longer than ever before. This is likely to be the result of a combination of many factors – for example, good diet, technological and medical advances. and increased access to healthcare.

However, simply moving to a country with high longevity is, in itself, not enough to confer any benefit.

For example, if you move to Spain but eat a ‘Full English’ breakfast every day, followed by fish and chips for lunch and roast beef with Yorkshire pudding for dinner, while all the while smoking 20 cigarettes a day and downing several pints of beer every evening, the Spanish climate and great healthcare is probably not going to help increase your lifespan by a particularly significant amount.

Read More

Is it time to dump your Premium Bonds?

Is it time the 21 million people with over £60 billion saved should cash in their Premium Bonds? Of course, you could just win millions! Premium Bonds are a savings product where the interest is based on a monthly prize draw and the annual prize rate is dropping from 1.35pc to 1.25pc. This is the average return, indicating that for every £100 paid in to bonds, on average £1.25 a year is be paid out.

In practice, that’s impossible. The smallest prize is £25; so if 20 people each had £100 in, for one to win £25-plus, the remaining 19 win nothing.

They seduce with tax-free returns, but if you live in Spain that is not and has never been the case and now, in the UK, that’s no longer special with the new rule meaning all savings interest is automatically paid tax-free.

Read More

Get in touch for more information

To contact us about this or any other news, please complete the form below

Select your country

Please select your country of residence so we can provide you with the most relevant information: