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Auto-enrolment may bring false sense of security – NOW: Pensions
Those saving into a workplace pension may be lulled into a ‘false sense of security’, with many not knowing what they are contributing, but still believing they will have a comfortable retirement.
For over half (56%) of those with workplace pensions, it is their only form of saving for retirement, according to new research from NOW: Pensions. More than half (54%) admit they don’t know what size pension pot they may have at retirement, and a quarter (24%) don’t know how much they are contributing. Nevertheless, a third are confident they will have a comfortable retirement.
Over a quarter (27%) said they are only paying the minimum 1% contribution, which equates to a saving of just £400 a year based on the average UK salary of £27,600, and including the 1% employer contribution.
From April 2018, minimum auto-enrolment contributions will rise to a total of 5% – 2% from the employer and 3% from the employee. They increase further from April 2019 to 8% – 3% from the employer and 5% from the employee. Most people plan to stay invested. Recent research from Royal London found that once the 5% contribution rise kicks in, 74% would continue to save in their pension.
The NOW: Pensions research also revealed a wide variation in the size of pension pots that savers expect to build up by the time they retire. Over a quarter expect to save £60,000 or less, but believe they will still have a comfortable retirement. On today’s annuity rates, a pot of £60,000 would buy an income of £3,118 per year at age 65.
On average, those with a workplace pension expect to save £150,477. A 65-year-old retiring today with a pension pot of £150,447 would receive an income of just £7,537 per year, £628 per month. Men expect nearly twice as much as women in retirement at £184,000 and women at £102,000.
Adrian Boulding, director of policy at NOW: Pensions, said: “Auto-enrolment is delivering on its objective of getting people saving – particularly those who’ve never saved into a pension before.
“But, with so many savers relying on their workplace pension as their only form of retirement saving, it’s imperative that they aren’t given a false sense of retirement security. It’s just not realistic to think that contributions of £400 a year will lead to retirement pots averaging £150,000.”
