Automatic pensions welcome but not enough, say workers

Published by Michael Trudeau on 24 September 2015.
Last updated on 24 September 2015

pension pot

Three years on from the introduction of pension auto-enrolment, most people who have been automatically enrolled in their employer's scheme still do not feel confident they are saving enough for a comfortable retirement.
Although almost all respondents to a survey by Hargreaves Lansdown said they saw auto-enrolment as a welcome change, 61% worry they may not be saving enough - and just over half do not know where their money is being invested.
But as a means of getting people to save for retirement, auto-enrolment has largely been successful. Recent research by Fidelity found the idea of employer contributions - where your company matches your pension contributions - to be a stronger incentive to save into a pension than the prospect of receiving tax relief.
Currently you must pay at least 0.8% of your salary towards your pension, with your employer paying 1% and the government giving you a 0.2% top up - meaning that for every £80 you contribute, £200 will go into your pension.
These minimums will increase by stages to 4% from you, 3% from your employer and 1% in tax relief from October 2018.
Critics have long warned that these meagre figures are not enough to secure the income in retirement necessary for a comfortable lifestyle.
There are still 5.2 million people who are ineligible for auto-enrolment (because they either earn less than £10,000, are under the age of 22, or are over state pension age), and are therefore not saving into a pension.
"For all its success, auto-enrolment is leaving millions behind," says Hargreaves' Tom McPhail. "If we include the self-employed, there are around 10 million workers who are still not saving into a workplace pension; more work needs to be done to make sure they don't miss out."
People's understanding of pensions has also increased thanks to the auto-enrolment scheme.
However, experts have warned that proposed government changes could undo all this new-found understanding just when people are starting to warm to the idea of saving for retirement.
Government proposals include major changes to the way tax relief is paid on pensions - which could mean the introduction of a single rate of tax relief for all taxpayers, or the abolition of up-front tax relief altogether.

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