With UK households struggling to make ends meet following high inflation, many are finding it more difficult to save for retirement, according to a new survey from the Pensions and Lifetime Savings Association (PLSA). Almost half (47 percent) of those not retired said they cannot afford to save right now due to the rising costs of everyday living.
As part of its proposals to help Britons make better provisions for their retirement, the PLSA has suggested alterations are made to auto-enrolment.
Increasing contributions
Looking beyond the current uncertain economic outlook, the PLSA has argued that the Government should increase the level of automatic enrolment contributions from today’s eight percent of a band of earnings to 12 percent of all salary in the late 2020s.
Under its preferred approach, by 2030, the pension contribution would be “levelled-up” and split between employers and employees.
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In the interim, the Government has promised to introduce automatic pension saving for 18-year to 21-year-olds and to increase pension saving by basing the contribution on the first pound of savings, rather than only above the lower earnings band of £6,240.
Nigel Peaple, Director of Policy & Advocacy, PLSA, said: “Many savers face substantial financial difficulties over the short term due to the COVID-19 pandemic but, over the longer term, the public see the value of saving towards retirement in a workplace pension.
“Moreover, while half of those responding to our survey say they cannot afford to save more now, a third do consider themselves able to do so.
“Many people do not fully understand the complexities of pension saving so it is important that the Government’s policy on pension saving takes account of this.
“In particular, alongside industry measures like the Retirement Living Standards which help people understand how much different lifestyles cost in retirement, the rules of automatic enrolment should be designed to give people an adequate income.”
The PLSA also said that it supports the Government’s promise to extend pension saving to younger people in the mid-2020s and to increase the amount of saving so that it is on the first pound of salary.
Savers see the value in pension planning
Despite the concern about saving for the immediate future, savers appear to still be recognising the importance of long-term planning and having a suitable pension in place for when it comes time to retire.
The PLSA found that around a third (32 percent) said they can afford to contribute more to their pensions now in order to boost their retirement income.
This news was backed-up further by just over three quarters (78 percent) of those not retired saying they think it is a good idea to pay into a workplace pension.
Education key to savers understanding their pensions
While Britons appear to be seeing the value of pensions, the PLSA’s survey also discovered that there remains a number of key fundamental misunderstandings by savers, with many unsure how their contributions were being invested on their behalf.
The survey revealed that only a third of people knew the minimum contribution rate that people make via Automatic Enrolment.
Additionally, around two fifths (39 percent) were not sure if the Government gave tax relief on their pension contributions and around a third (31 percent) were unsure if their pension savings were invested in stocks, bonds, or other investments.
