Published On: Thu, Apr 21st, 2022

Pension ‘disaster’: Calls for pension reforms as Britons face ‘bleak’ retirement | Personal Finance | Finance

Automatic enrolment has driven a surge in the number of people saving for retirement, according to new official data from the Office for National Statistics (ONS). However, there are still concerns over people being left behind in saving for retirement.

Since the reforms were introduced in 2012, the proportion of private sector workers saving in a workplace pension scheme has more than doubled from 32 percent to 75 percent.

However, many employees are not eligible for auto-enrolment, including low earners and younger workers.

There are also concerns the minimum auto-enrolment contribution rate is not sufficient and paying in only the minimum amount could mean disappointment in retirement.

Tom Selby, head of retirement policy at AJ Bell, said: “Automatic enrolment has undoubtedly been successful in dramatically boosting the number of people saving something for retirement.

READ MORE: State pensioners may see sum affected if they were in a workplace pension

He said: “Even those covered by auto-enrolment are at serious risk of retirement disappointment.

“A 30-year-old contributing at the minimum until state pension age who spends their 25 percent tax-free cash might only be able to enjoy a drawdown income of around £10,000 a year until their mid-90s.

“Someone earning £30,000 a year who is first auto-enrolled on their 40th birthday on the same terms faces an even bleaker retirement, with their fund potentially delivering an income of just £5,500 a year until their mid-90s.”

He warned that many Britons could be heading towards an insufficient pension pot to sustain them in retirement.

Mr Selby concluded: “To put it bluntly, as things stand self-employed workers are like the Titanic, unwittingly on a collision course with a giant retirement iceberg.

“Without urgent action, this will become the next pensions disaster in the UK.”

Becky O’Connor, Head of Pensions and Savings at interactive investor, called for the scope of auto-enrolment to be widened to help more Britons contribute towards a pension.

She said: “If we want more people to be less dependent on the state pension in retirement, it would help if the boundaries around auto-enrolment participation are relaxed.

“While it is often going to be harder for people on low incomes to put money away for the future, some low earners may be able to tolerate the loss of some cash now in exchange for a decent retirement later.

“These could be low earners with multiple jobs, those with higher earning partners or those younger workers who are still living at home to save money on living costs, for example.

“Given the huge difficulties many will face surviving on the state pension in decades’ to come, it makes sense to auto-enrol more younger people and lower income earners now.”

Ms O’Connor believes younger workers in particular could benefit from being included in auto-enrolment.

She concluded: “The benefits for investment growth of contributions early in working life are worth having.

“The minimum age set at 22 assumes someone starts a career after having gone to university – which may not be an accurate assumption.

“A career could start at 18 for someone who does not go to university. It doesn’t seem right that these young non-graduate workers should miss out on four years of pension contributions.”

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