Graham Vidler, director of external affairs, PLSA will be joining us at the Reward Financial Engagement seminar discussing the importance of providing more than just the statutory requirement when it comes to pension contributions
What is the importance is providing more than the statutory requirement when it comes to pension contributions?
8 per cent of band earnings is not enough to achieve an adequate retirement. It was never intended to be enough – it is roughly half what the Pensions Commission thought the right amount was. The Pensions Commission thought that people would need to save roughly double that with the extra half coming through additional voluntary saving. However, there is little sign of this additional saving taking place.
To investigate this issue further, in 2016 the Pensions & Lifetime Savings Association undertook some research to assess whether people are on track to achieve an adequate income and, if not, what might be done about it. We concluded that for those fully under the new automatic enrolment regime and without substantial past savings, it will be necessary to increase contributions to around 12% of salary. Needless to say, with the economic headwinds facing the UK, and uncertainty about how employees will respond to the planned increases in saving levels from 2% to 8%, we do not think this rise should happen in the immediate future – rather something to consider for the 2020s.
Why is it important for SMEs in particular to hear this?
We see there being two key reasons for SME to understand the likely outcomes from pension saving.
First, no business will wish to deal with the challenge of a workforce that cannot afford to retire. Ending employment for those over the state pension age is already illegal but due to the higher pensions of the past, the full ramifications of this for workforce planning have not yet fully emerged.
Second, just as it is now becoming a “social norm” for everyone to save for their retirement in a workplace pension, we believe in the future a new norm will arise focussing on the value of the pension offered. Indeed, if we are to ensure that people have adequate incomes in retirement, it is essential that they understand more about the value of the pension on offer to them.
The PLSA is playing a part in helping more people save more for retirement. Last month we proposed that a series of Retirement Income Targets should be adopted in the UK to help people plan and save for retirement. If you would like to share your views on this topic, you can find a copy of our consultation document on our website – “Hitting the Target: Delivering Better Retirement Outcomes”.