11th June 2014
The introduction of pensions auto-enrolment and a tentative pick-up in the economy has pushed UK retirement savings rates to their highest levels in five years.
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The annual Scottish Widows retirement report shows 53% of people are now saving adequately for retirement, the highest the figure has been since 2009, up from 45% last year to make it the largest year-on-year rise.
Auto-enrolment, the process of automatically placing workers in company pension schemes that started last October, has played an important part in this increase. The average proportion of earnings put aside for employees of companies with 250 staff – the first tranche of employees to be auto-enrolled – has increased from 9.7% to 11.6%.
This is higher than the long-term minimum auto-enrolment goal of 8% of earnings that will be introduced in 2017.
A recovering economy also means the ability to save, and importantly confidence in saving, is higher.
Over a third, 37%, of people said they felt optimistic about their long-term finances compared to 32% last year. The number of people who cited affordability as a reason why they don’t plan to save more over the next 12 months has continued to fall from 71% in 2012, to 68% in 2013 and to 59% this year.
Those who say they are free from debt has increased from 13% in 2012 to 14% in 2013 and to 16% this year.
The monthly amount people are saving towards their retirement outside of a pension has increased 141% from £54 in 2006 to £130 in 2014. An average person now has an average amount of £40,000 in savings and investments and even when those who have a large amount of savings is discounted, this represents an increase of almost £5,000 on last year.
Ian Naismith, pensions expert at Scottish Widows, said: ‘It is heartening to see that finally people are starting to sit up and take notice of the importance of planning for the future – whether this be through proactively upping their contributions due to a more favourable economic climate, or starting to make plans for their retirement for the first time thanks to auto-enrolment.’
However, it is not all good news for retirement saving. One in three people say they have no idea of the extent to which their pensions, savings and investments will meet their retirement income needs. A third of people also do not believe they will be better prepared for their retirement that their parents were.
Although optimism about consumers’ financial futures has increased it is still lagging behind 2005 figures, when 51% of Britons were optimistic about their long-term finances compared to 37% this year.
‘Although we have undoubtedly made some significant strides forward since our research first began, there is still some groups who are not preparing adequately for a comfortable later life and are at risk of slipping through the net,’ said Naismith. ‘While celebrating the success of the wider savings picture, we must not forget to identify and support these at-risk groups, such as the self-employer or part-time workers, to make sure they too have a plan for securing their financial future and do not get left behind.’
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