8th September 2014
The number of workers on lower incomes now saving adequately for retirement has soared from 34% in 2012 to 50% today.
According to the latest Scottish Widows Workplace Pensions Report half of employees earning between £10,000 and £30,000 a year and half of those aged 30-49 are now squirreling away enough cash into their pension pot, primarily as a result of the introduction of auto-enrolment.
Two years ago, new laws were introduced that meant every employer must automatically place workers into a workplace pension scheme if they earn more than £10,000 a year and are at least 22 years of age.
The report from the pension provider found that even those for whom retirement is a considerable way off are feeling the benefit of auto-enrolment, with the number of people aged 30 to 49 saving adequately for retirement now at 49%, up from 42% in 2013. However, despite this success, there is still an awareness gap among younger age groups about the importance of saving early for retirement, with only a fifth of 22 to 29 year olds and a third of 30 to 49 year olds agreeing that the age to start saving for later life is 25 or younger.
Scottish Widows calculations show that although most people do not think about saving for retirement until their 30s, starting to save five years earlier could add almost a fifth in retirement income, or £725 annually. Starting to save a decade earlier could add an extra £1,500 to annual income in retirement.
Additionally, in spite of the success among these at-risk groups, there is still a small proportion of people who do not feel able to take advantage of auto-enrolment. Notably some 3% of employees who were auto-enrolled this year have opted out, with the top reasons cited including a lack of money for 29% of this group and other financial commitments, such as credit cards and unsecured loans, at 23%. Those in their 20s and those with four or more dependent children were the most likely to opt out.
Lynn Graves at Scottish Widows believes this year’s results are extremely encouraging as the reform is more widely understood and welcomed by these groups as it rolls out to a wider cohort of employees.
Lynn Graves continued: “While these findings are encouraging, there is still some work to be done to ensure that the message is getting through about the importance of starting to save as soon as possible. Our calculations have shown the huge impact that starting to save earlier can have on your retirement income, so it is essential that people understand the bigger picture when it comes to planning for retirement.”