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Pension savings became a priority for the government in recent years as they launched auto-enrolment rules to encourage personal long-term planning. Auto-enrolment made it compulsory for all employers to enrol all eligible staff into a workplace pension scheme – one in which both the employer and employee would contribute.
This effort has been largely worth it according to Scottish Widows who, in a recently released retirement report, highlighted that the level of adequate savers (those putting away the recommended minimum of 12 percent) had reached 60 percent, largely because of auto-enrolment.
This has been especially beneficial for the UK’s younger workers, who may underestimate the importance of retirement planning.
Scottish Widows found that more than half of 22-29 year olds are now saving adequately for retirement – an increase of 11 percent on 2019’s figures.
Despite this, there are worrying signs that coronavirus may be putting these savings levels in jeopardy.
Separate research from the firm also found that two in five of all savers are not saving adequately for retirement, with 15 percent not saving anything at all.
Worryingly, it was revealed that more than 3.7 million people have reduced or stopped saving into their pension entirely as a result of the outbreak.
Pete Glancy, the Head of Policy at Scottish Widows, commented on these findings and said: “Auto-enrolment has transformed the retirement prospects of millions, giving everyone a better chance to retire in safety and security.
“Young people in particular have benefited by saving through AE, alongside record levels of employment and inflation-busting wage growth before lockdown.
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“However, we shouldn’t be celebrating prematurely as we are still seeing the nation’s youngest savers excluded from these benefits (18-22-year-olds).
“We also recognise that the next 12 to 18 months is going to be about businesses and individuals getting back on their feet.
“With the impact of AE [auto-enrolment] having plateaued, now is the time for policymakers to focus on cohorts of the population, like young savers and those hardest hit by Covid-19, who are not yet benefiting from the current system and need effective solutions to help them save for the future.”
The modern economy may in itself also be contributing to retirement planning issues.
Scottish Widows also found that there are 6.8 million “multi-jobbers” in the UK who can miss out on pension contributions because their income is split across different employers which sees them fall short of the minimum earnings threshold for automatic enrolment.
The government previously committed to scrapping this rule and basing contributions on an individual’s full earnings but Scottish Widows said this has yet to happen.
As such, there remains a significant number of employees who are excluded from the benefits the government set up to help all workers.
Scrapping these rules, according to Scottish Widows, could see these worker’s contributions increase by up to 60 percent – a substantial amount which could make a real difference to retirement prospects.
Mr Glancy concluded by making a call for a sense of accountability.
He said: “We must face up to the fact that the pension system unfairly penalises those who are in low paid work.
“Scrapping the minimum earnings threshold would allow millions of multi-jobbers, which include some of the hardest working and most financially vulnerable members of society, to benefit from auto-enrolment like everyone else, and is long overdue.”
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