Workers in shutdown sectors may never be able to afford to retire
According to the latest Scottish Widows Retirement Report, many workers were already struggling to save for retirement before coronavirus devastated the global economy.
Its annual research of more than 5,000 adults in the UK found that more than a quarter (27%) of those who work in travel and the arts have not yet started saving into a pension.
In addition, it found that two-thirds (67%) of retail workers are worried that if they ever did retire, they would quickly run out of money.
Meanwhile three in five (62%) construction workers feel they are not preparing adequately for retirement and only 18% of restaurant workers are optimistic about retirement.
Since this research was carried out, the global lockdown has caused activity across travel and tourism, construction, hospitality, retail and the arts to fall off a cliff edge.
UK retail and aviation firms have cut 11,000 jobs in two days, accommodation and restaurant businesses have contracted by an estimated 85%, and almost 50% of employees in these businesses have been furloughed.
Scottish Widows says it’s highly likely that these workers are now facing new financial pressures that make saving for the long-term even more difficult.
One of the reasons these groups of workers have historically been pessimistic about retirement, even before Covid-19, is because often their employer only contributes the legal minimum into their pension.
For example, more than 85% of workers in accommodation and restaurant businesses receive an employer pension contribution of less than 4%.
Pete Glancy, head of policy at Scottish Widows, says: “A record high three out of five people are now saving adequately for retirement. Yet, long-term prospects are still to a large degree defined by the industry in which people work. That’s because, while auto enrolment has transformed the retirement prospects of millions, minimum contributions are still far below what is needed to provide a good standard of living.
“We recognise that the next 12 to 18 months is going to be about businesses getting back on their feet, but many individuals have taken a substantial hit to their finances and the fear is that the gap can’t be closed, meaning they face a lifetime of work as they struggle to afford to retire.”
Multi-jobbers left behind
In some of these industries, people are having to work multiple jobs. For example, a quarter of people (24%) in travel and tourism and in the arts have more than one job. This rises to 27% of people who work in education.
In total there are 6.8 million ‘multi-jobbers’ in the UK, who could unfairly miss out on pension contributions because their income is split across different employers, which sees them fall short of the minimum earnings threshold for automatic enrolment for each of those jobs.
There have been calls from the pensions industry for the earnings trigger to be reduced or removed, but this hasn’t happened yet and as such there remains a significant number of employees excluded from the benefits of auto-enrolment.
Scottish Widows says making this change could see these worker’s contributions increase by up to 60%, making a real difference to retirement prospects.