More than half (63%) of respondents agree with the idea of auto-enrolment, according to research by the national employment savings trust (Nest).
Its Nest insight report, which draws on five years’ worth of research and evidence from a number of sources, including its own research, found that 67% of respondents agree that auto-enrolment would mean they could stop worrying about their retirement.
The report also found:
- 74% of employee respondents are confident handling day-to-day financial decisions.
- 14% of employee respondents think their current long-term savings plans are adequate.
- Almost half of employer respondents with more than 5,000 employees that said they are ready for auto-enrolment said they have spent between 10 and 18 months preparing.
- A quarter of employer respondents said communicating the pension reforms to the workforce is a priority.
- 98% of employer respondents that are aware of the reforms have already sought, or plan to seek, advice.
Speaking at the launch of the report, Tim Jones, chief executive of Nest Corporation (pictured), referred to unpensioned workers, who do not currently belong to a qualifying workplace pension scheme. He saidd: “The core aim [of auto-enrolment] is to get to most people and make a significant difference to their lives.”
He added that the majority of employees believe auto-enrolment is a good idea. Although many have not yet engaged with pensions, they know that they should do, but have not known how to approach the task.
Jones added: “Automatic-enrolment represents a massive opportunity to improve pension participation as pensions go mainstream from this year. Our research tells us that this is what most [employees] want. Despite the economic challenges, the time is right for automatic-enrolment.
“Given the current economic constraints on household budgets, you might have expected opposition from [employees] for automatic-enrolment, but our research strongly suggests they welcome the policy.
“A fear of making the wrong decision has put many people off joining a pension in the past. However, the knowledge that their pension is being taken care of through a low-maintenance approach driven by their employer gives savers peace of mind. Whether the level of contributions will be enough to meet their aspirations is a conversation for further down the line, but automatic-enrolment is a great start.
“One of the reasons we are publishing this report is to share these insights with [employees], employers and industry bodies alike. We are calling on everyone in the industry to work together to help employers prepare, and ensure they can be confident that implementation will work well.
“This will be particularly important during 2014 when thousands of employers come on board within a few months of each other.”
Nest’s research highlights the urgent need for more workers to save greater amounts for their retirement. The success of auto-enrolment is a key part of making this happen and in establishing greater confidence in pension saving.
However, many employers are still behind the curve in their auto-enrolment planning and must now get to grips with their new duties well before their staging date. Government can also help to ensure its success by lifting the current restrictions on transfers in and out of Nest and the annual contribution limit.
The CIPP is pleased and extremely encouraged by the findings from Nest’s research and was especially pleased to contribute to the report.
Employers need to invest in time and money to implement automatic enrolment. With consumers welcoming the provision, it will make it a very worthwhile reward to offer their employees, and ensure the time spent complying with the legislation will be appreciated by their workforce.
Professional advice will not be necessary for all firms; many will rely on the information provided by the government and Nest. But success is not just having a scheme in place. It will be measured by the take-up and buy-in of both employers and employees, and if professional advisers can help alleviate some of the burden to employers and promote the value of long-term savings to employees, auto-enrolment will be a win-win for all.
Just 63% of consumers have bought into the idea of auto-enrolment, which shows that there is still a considerable amount of work to be done in convincing individuals of the benefit of saving for retirement.
Similarly, 67% said they could stop worrying about their retirement once they had been auto-enrolled; the problem here is that for most people, the default auto-enrolment contributions will almost certainly not deliver a pension which will meet their expectations. For example, a 35-year-old earning £30,000 a year would probably have to save an additional £316 a month on top of their statutory minimum contributions to hit a target pension of 2/3 of their pre-retirement earnings (source Hargreaves Lansdown).
For employers, the big challenge is still to prepare for auto-enrolment. In spite of DWP efforts to make the process as simple as possible, The Pensions Regulator has acknowledged that most employers will need help in complying with the legislation so the sooner they start to address their responsibilities, the better. An 18 month lead-in time ahead of their staging date is a good starting point for most employers.
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Nest’s Insight report has revealed that companies with less than 5,000 employees are still woefully unprepared for auto-enrolment and that a vast number of people are still failing to plan for retirement.
Implementing auto-enrolment can be an extremely complex process, especially for those organisations with limited resources and no existing pension provision. However, the process can also be confusing for the employee and the report goes a long way to highlighting this.
With a worrying 67% reporting that auto-enrolment is enough to stop them worrying about retirement, focus must turn to helping scheme members understand what retirement will actually mean for them and what it will take for them to build an adequate retirement income. Otherwise millions of newly enrolled employees will simply drift towards an impoverished period of old age