Need for further action beyond auto-enrolment
- Only 13% willing to contribute 10% or more of salary to pension pot
- 41% would save more with more attractive government tax reliefs
New research from Friends Life, the Life Insurance & Pension provider, reveals that over 61% of people would either opt out of a pension scheme altogether (26%) or would be unwilling to contribute more than 5% of their salary to their pension pot (35%). At the same time, only 14% thought that saving the equivalent of 8% of their salary each month (the total level auto-enrolment will reach with combined employer and employee contributions plus tax benefits) would be sufficient to fund a comfortable retirement.
Worryingly, only 13% stated they would be happy to personally contribute more than 10% of their salary. Whilst the results show that a majority of consumers are open to saving something for retirement, a 5% personal contribution may not be enough to provide the level of income that people expect to receive in retirement. Individuals may need to save a substantial amount more to ensure their long-term financial wellbeing is at a level which will sustain the lifestyle they want.
The survey also reveals which measures would encourage people to put more into their pensions. Increased tax relief (41%) and a clearer idea of the income that will be provided at retirement (31%) were the most popular responses.
Better annuity rates also rate highly (27%) as does the ability to withdraw pension monies before retirement (25%) and greater flexibility (23%). One in five (20%) said nothing would persuade them to increase their contributions.
Other results from the survey show that nearly 9% of the population claim they would struggle to make ends meet with the deduction of a 1% pension contribution from their salary, the minimum starting employee contribution under the new auto-enrolment scheme. A further 5% said it would affect them ‘significantly’ and a further 14% ‘quite a lot’.
Colin Williams, Managing Director of Corporate Benefits at Friends Life comments,
'Auto-enrolment is the first step in encouraging people to save for the long-term and consider their financial security in retirement. 'The current economic climate is undoubtedly squeezing employees’ incomes, but to prevent retirement poverty we have to motivate people to take responsibility and start saving early. The low starting rate for contributions under auto-enrolment should help in this respect.
'The easiest way to prevent retirement poverty is to encourage employees to start saving early. If auto-enrolment fails to kick-start the fight against retirement poverty, the government will have to consider other options, which may include compelling people to save rather than just nudging them along.'
Source: Friends Life