October 1st, the day Auto-enrolment started, may just have signalled a revolution in how we save for retirement. By 2017 every business will have to automatically contribute to and enrol all staff over the age of 22 who earn more than £8,105 into a workplace pension. When it’s fully up and running, it’s hoped that six to nine million more people will have a private pension. At Age UK, we sincerely hope it will be the nudge some people need to start saving.
Just 2.9 million people paid into a workplace pension last year, an all- time low and a deeply disturbing trend when combined with rising life expectancy. Yet more people are living longer after retirement than ever before, many of them struggling on a basic state pension of around £107.
Auto-enrolment is an important first step in reform, helping people begin to build up a nest egg for later life . But in order to fully live up to its potential, the Government has to go further and faster.
Age UK believes if auto-enrolment is to appeal more widely, particularly to those on low incomes, the Government must deliver its commitment to a flat rate pension . This should alleviate the concerns of those who fear it will jeopardise any means tested benefits they receive and give them a better idea of how much money they should expect at retirement, encouraging them to save.
More also needs to be done to ensure the public get maximum value out of their pensions. NEST, a critical part of the reforms, has been specifically designed for those on lower incomes – those most at risk of poverty. That’s why we want to see the current restrictions on NEST lifted, so more people can accumulate their pension savings in one place.
Auto-enrolment will increase the number of people with small pension pots, especially for those who move job frequently. By 2050 there will be an estimated 4.7 million pension pots. Multiple pensions are already proving an issue for some people whose savings are too modest to annuitise successfully.
Whilst we are pleased the Government is taking action, we fear their proposed approach of ‘pot follows member’ might mean consumers could lose If Government is to press ahead with this option, it’s important that it puts in place minimum standards, so schemes keep charges low, improve governance and increase transparency.
We believe that now is the time to provide a solid basis for private saving, by pressing ahead with plans for a simpler, fairer state pension and ensuring the private pensions market works more effectively for people’s hard-earned savings.
Age UK is pressing for action on a number of money-related issues. Find out more about our work on money matters.