4th March 2016
Auto-enrolment is giving savers a false sense of security about their retirement when in reality they still aren’t saving enough into their pensions.
Portal Financial has warned auto-enrolment, which was introduced in 2012, is not preparing savers for a comfortable retirement and that contribution levels must increase.
Auto-enrolment aims to get as a many as nine million workers saving into a pension for the first time by 2017. By this time the contribution level will have increased to 8% of salary, made up of 4% employee contribution, 3% employer contribution and 1% tax relief from the government.
However, Portal Financial managing director Jamie Smith-Thompson does not believe it is enough. Currently, the average worker pays just 4.7% of their pay into a pension but a recent report has warned people will have to work into their 70s in order to enjoy the same standard of retirement as their parent’s generation.
‘Apathy, misunderstanding, confusion and misperception are a toxic mix that could lead to retirement poverty for many of today’s workers,’ said Smith-Thompson.
‘A person who has been retired for many years may have received a much more generous annuity rate than can be achieved today, while there is a good chance many parents of today’s 20-somethings have final salary pensions. Young workers need to understand how the situation they face is different now.’
He said news that people would have to work until their late-70s are ‘damaging as they could deter people from saving into a pension at all’ and if they increased their savings they could retire much earlier.
‘Pensions are currently the most generous and tax efficient savings vehicle; a focus on making people aware of how much better off they could be with one and increasing contributions with pay rises could significantly reduce a person’s career length,’ he said.