There's absolutely no doubt that auto enrolment has been a resounding success. Millions more people are now actively saving for retirement. But are they saving enough?
No is one of the conclusions of the Pension and Lifetime Savings Association report "Hitting the Target: A vision for Retirement Income Adequacy". The report sets out the conclusions of a three month consultation that was designed to ensure that everyone gets a better income in retirement. Findings of the report included:
- 80% of people saving for retirement are not sure whether they are saving enough.
- 51% wrongly think that the minimum auto enrolment pension contribution is the government's " recommended amount."
- 34% said that they could save more for retirement.
Nigel Peaple, Director of Policy and Research at the PLSA, said:
"Millions of savers are in the dark about whether they're on track for the lifestyle they want in retirement. With future generations unlikely to have the same levels of property wealth, or final salary pensions, as current retirees do, it's vital more is done to ensure people can cover the costs of later life. We want the Government, pensions sector, and regulators to work together to take forward our recommendations and help many more people achieve the retirement they desire."
The Pensions and Lifetime Savings Association is making a number of recommendations including:
- Introducing retirement income targets that show the lifestyle someone could afford on different levels of income.
- The government should raise the minimum contribution levels for automatic enrolment from 8% of band earnings to 12% of total salary.
- Pension schemes should signpost people to appropriate products at retirement.
- It should be easier for people to supplement their retirement with income from borrowing against their home, and to keep working in later life, if they wish.
- Pension schemes should be better run and a set of metrics should be developed to assess whether a scheme offers good value for money.
Baroness Altmann, former pensions minister, said: "It is certainly true that people are not sure how much they should be contributing to a pension, to secure themselves a comfortable retirement. It is also very worrying that so many people think the auto enrolment minimum levels are an appropriate amount - they are unlikely to deliver a large private pension."
"But most people need help with financial planning and would benefit from having an independent expert adviser to monitor their savings over time and recommend what they should do. Pension planning is not an exact science and your pension fund needs to be monitored regularly. If you do not have enough saved, you could decide to keep working longer and save more."
Sir Steve Webb, another former pensions minister who was instrumental in the introduction of auto enrolment said:
"One of the most commonly asked questions in pensions is: 'How much do I need to save?'. A system of retirement income targets would help people to work out what sort of retirement they could expect if they save at varying levels. This would also enable pensions to be presented in a positive light as giving people choices over their quality of life in retirement, rather than trying to make people feel guilty about not saving enough – a strategy which has never worked in the past."
A Department for Work and Pensions (DWP) spokesman said: "Automatic enrolment was introduced so that people who were previously saving nothing towards their retirement could start saving into a workplace pension. Almost 10 million people have been enrolled so far."
"We have brought in phased contribution rate increases for workplace pensions and are committed to an ongoing review to ensure we continue to balance the need to save with everyday costs."