Auto-enrolment contributions should be increased, the earnings qualification threshold should be lowered and the qualifying earnings should be dropped to reverse stalling pension adequacy amongst Britons says Scottish Widows.
The provider’s 13th annual retirement adequacy barometer has found the number of people saving adequately for retirement remains unmoved at 56 per cent for the third year in a row, despite the further roll-out of auto-enrolment. The provider defines adequate saving as a 12 per cent combined employer/employee contribution.
Almost one in five adults in the UK – 18 per cent – is still not saving anything into a pension and 70 per cent of under 30s are not saving adequately, says the provider.
The provider says the 8 per cent of band earnings auto-enrolment maximum, mandatory from April 2019, is lulling workers into a false sense of security and should be increased to 12 per cent of salary by 2020.
Widows says the £10,000 earnings threshold for auto-enrolment should be abolished altogether, along with the qualifying earnings rule which sees the first £5,876 of salary discounted when calculating contributions.
Scottish Widows head of policy development Pete Glancy says: “There is no doubt auto-enrolment has been a success in kick-starting the savings habit for millions – but it is not a silver bullet. Auto-enrolment may well be lulling people into a false sense of security that they are putting away enough for a comfortable retirement. For many, particularly those only making the minimum contribution, that is simply not the case given retirement is looking more expensive, and longer, than ever. We want the Government to take the opportunity with the auto-enrolment review to make some rule changes to help people save more.”
JLT Benefit Solutions principal Stephen Coates says: “While saving something is better than saving nothing, an 8 per cent contribution is a long way from delivering fully-funded retirements. The next challenge is to move the conversation from the policy-makers, scheme providers and the employers, to the policyholders themselves. They need to be actively involved in determining and reviewing their savings levels, monitoring charges and investment performance, as well as making the right choices at retirement. The first hike in contributions provides a great opportunity to further prompt savers to take greater responsibility towards their retirement.”