The long-term success of the current workplace pension regime relies on the provision of financial education and guidance to persuade individuals of the merits of saving more for their retirement.
Jonathan Watts-Lay, Director, WEALTH at work, a leading provider of financial education, guidance and advice in the workplace, said: “We welcome the news that more than eight million employees have signed up for a workplace pension since the launch of automatic enrolment in October 2012, and that the annual total amount saved by eligible savers was £87.1 billion in 2016 – an increase of £3.8 billion on the total amount saved in 2015.
“But it’s easy to get carried away with the small successes of auto-enrolment, rather than focus on the work that still needs to be done to encourage individuals to save more for their retirement.”
He added: “The minimum contribution rate for defined contribution pension schemes, personal pension schemes and some hybrid schemes is being phased in over time and will increase from a minimum of 2% overall (with at least 1% from the employer) to a minimum of 5% overall (with at least 2% from the employer) in April 2018.
“Minimum contribution rates will increase again in April 2019 to a minimum of 8% total (with at least 3% from employers). But this is far below the contribution levels required by many individuals to enjoy a comfortable retirement.
“As much as auto-enrolment is a positive step, there is clearly still a long way to go until we are at a stage where the majority of employees are producing adequate savings for financial security at-retirement.”
Watts-Lay said: “Retirement might seem a long way off for many, but individuals really need to think about how they are going to fund their future income as early as possible, to get a better understanding of what they need to be doing now.
“Saving more now or working longer than planned could make a real difference to retirement income and the value of well thought out planning from early on should not be underestimated.
“Financial education and guidance delivered in the workplace is crucial to help individuals set and achieve their financial goals, giving them more control over their finances, and ultimately their retirement plans in the future.
“It is only when this is delivered and individuals genuinely understand the long-term benefits of saving more for retirement that auto-enrolment can be considered a true success.”