Automatic success - but half of new pension savers can go up a gear
11 May 2016
- Two in five new auto-enrolment savers say workplace pensions have encouraged them to plan better for retirement
- But just 26 per cent believe they are saving enough for a comfortable retirement
- More than half feel they could afford to contribute more each month
The success of auto-enrolment in attracting millions of new savers into workplace pension schemes has encouraged more than two in five (44 per cent) of them to make better plans for their retirement, according to new research1 by Prudential. However, many of these new pension savers admit they could actually afford to save a bit more.
Official figures2 for March 2016 show that more than 6.1 million people now save for retirement as a direct result of workplace auto-enrolment, which has been rolling out since October 2012. More than 100,000 employers have now automatically enrolled staff into a workplace pension.
However, despite the success in terms of numbers of new savers, the exclusive Prudential study of workers who have started contributing to pensions through auto-enrolment shows that more than half (51 per cent) say they could afford to save more. In fact nearly three in 10 (29 per cent) admit they could actually afford to save an extra £100 or more each month, while just 26 per cent believe they are currently saving enough for a comfortable retirement.
The results also show that the average employee contribution among new auto-enrolment pension savers is £63 a month with just under half (48 per cent) contributing £40 a month or less. Those who say they could realistically afford to save more could spare an average of an extra £79 per month.
The minimum contributions that employers and workers are expected to make will increase gradually. Under the current rules3 workers aged 22 or over and earning more than £10,000 a year need to contribute just one per cent of their earnings, but this is scheduled to rise to three per cent by April 2018 and then five per cent by April 2019. However, Prudential’s research found that nearly half (49 per cent) of new pension savers feel they cannot afford to increase contributions from their current level even though the law will require them to do so in the future.
The research also found evidence of auto-enrolment encouraging people to plan more generally for their future – nearly one in six (17 per cent) of those questioned say they have been to see a financial adviser as a result of signing up to a workplace pension scheme.
Stan Russell, a retirement income expert at Prudential, said: “The numbers clearly demonstrate the obvious success of auto-enrolment in encouraging people to save for their retirement for the first time. Our research shows the broader impacts and it is good to see that many new pension savers are waking up to the benefits of professional financial advice and developing a culture of retirement saving and planning.
“Interestingly, many of the six million new pension savers feel they could be saving more, perhaps indicating their awareness that the best way to secure a comfortable retirement is to save as much as possible into as pension as early as possible in their working lives. And of course those who are members of a workplace pension will also benefit from additional employer contributions.”
Prudential’s research also shows that it isn’t just young workers who are benefiting from auto-enrolment – one in six (17 per cent) new pension savers who have started to contribute under the scheme are within 10 years of retirement.
Stan Russell continued: “The changing pensions landscape has made saving for retirement more attractive to many people over recent months and the fantastic take up of auto-enrolment will make a difference to their quality of life in retirement. Even for those later in their careers, it’s never too late to save for when the time comes to give up work.”
Notes to editors
1 Consumer Intelligence conducted an independent online survey of 1,141 employed adults aged 18-plus who have started saving into a workplace pension under auto-enrolment for Prudential between 29 March and 4 April 2016.
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