The UK Readiness Report from Aegon, one of the UK's largest providers of life insurance, pensions and asset management has revealed that just 7% of us are on track for the retirement that we desire, with nearly two thirds of the people questioned indicating that they do not think they will be able to retire when they want to.
Confusion surrounding auto enrolment
The Government's auto enrolment scheme was brought in to try and address the fact many people are simply not preparing sufficiently for retirement. Auto enrolment, where employers are required to place their employees into pension schemes and contribute however is dogged by misunderstandings and a general confusion as to how the scheme works.
According to the UK Readiness report:
- 41% of employees are unaware just how much of their salary is being paid into their pension pot
- 59% are completely unaware how much their employer is contributing to their retirement savings
- 35% of employees don't actually know if they are actually eligible or allowed to be auto enrolled into a company pension.
All of these factors could have massive implications for the eventual level of income that can be achieved. If people have no idea about the size of their pension pot or how much is being put into it, how can they know whether they are on track to achieve their retirement goals?
Much of this can be put down to people's unrealistic expectations about both when they want to retire and how much money they will have to live on. According to Aegon's survey, 63 years of age is the average age of retirement that most people aspire to, with a desired income of £42,000 per year. However, this would require a pension pot of over £1 million, higher than the new pension lifetime allowance which will come into effect in 2016.
The good news
It's not all bad news however. Auto enrolment is working, with 79% of people surveyed indicating that their workplace pension will be their main source of retirement income, with just 6% expressing their intention to leave their scheme when the minimum contribution levels rise from 1% to 5% in 2018. Encouragingly, 20% of people said they will actually increase the amount of money they are putting into their pension above the minimum requirements.