As part of the government’s plans to help individuals save more for retirement, minimum automatic enrolment contribution rates are due to rise from 5% to 8% this April. But is this enough to secure an adequate retirement income and what more can be done to help employees?
Jonathan Watts-Lay, Director, WEALTH at work, comments:
“The Pensions and Lifetime Savings Association has previously called for lifetime average contributions on all earnings of 12% a year and we would support that.
We would also like to see some form of auto-escalation, so when a member gets a pay rise they automatically increase the percentage they are paying until they reach a level that is likely to produce an adequate income.”
He adds; “Whilst auto enrolment (AE) has been a great success in getting people to save into pensions, if the member gets used to an 8% contribution rate they may believe this is the ‘right’ amount and not consider paying more.
Often employers will match to higher levels, yet their default contribution is in line with AE requirements and members will and do miss out. Our experience is that there are many schemes where employees could take advantage of more ‘free money’ but don’t understand the benefits on offer.”
Watts-Lay explains: “Financial education in the workplace is essential in helping employees realise how valuable workplace pensions are and how to make the most of them. We work with employees in many organisations to show them this as well as how they could free up money to ensure pensions are affordable. It is not unusual for hundreds of pounds per year to be freed up by shopping around for everything from car insurance and utility providers to using discount vouchers to save on the weekly shop.”