Half of UK employees on lower incomes and half of those aged 30-49 are now saving adequately for retirement, according to the latest Scottish Widows Workplace Pensions Report, showing the impact of automatic enrolment on the groups that need it most. As the legislation approaches its second anniversary, the annual report from Scottish Widows finds that the number of people on incomes of between £10,000 and £30,000 who are saving adequately for retirement has risen steadily from 34% in 2012 when auto-enrolment was introduced to 50% in 2014.
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 (21%) of 22 to 29 year olds and a third (32%) of 30 to 49 year olds agreeing that the age to start saving for later life is 25 or younger.
Scottish Widow 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 one-fifth annually in retirement income. For example, someone earning £25k pa and saving an average of 9.1% of earnings who started to save 10 years earlier, could add an extra £1500 pa to annual income in retirement.
Additionally, in spite of the success amongst these at risk groups, there is still a small proportion of people who do not feel able to take advantage of auto-enrolment. Three per cent of employees who were auto-enrolled this year have opted out, with 29% giving the reason as a lack of money, and 23% citing other financial commitments such as credit card debt and repayment of unsecured loans. Employees in their 20s (6%), and those with four or more dependent children (7%) were most likely to opt out.
Lynn Graves, Head of Business Development, Corporate Pensions at Scottish Widows, commented:
“Auto-enrolment is designed to help shore-up the financial futures of groups that may not be in such a strong position to prepare adequately for retirement on their own – particularly lower income groups and younger people who are yet to establish the savings habit. In this respect, 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. Our research shows that 77% of people are now aware of the scheme, rising from 39% in 2012 and 65% in 2013, and that 65% of the UK population is positive about the effect of auto-enrolment”.