Auto-enrolment will initially see employees of the UK's biggest companies automatically entered into their workplace pension schemes and will extend to all other employers over the next five years. Despite this large-scale roll-out, the annual report from Scottish Widows found that the majority of workers display an alarming lack of awareness of this new legislation. Awareness is particularly poor amongst those who the scheme is targeted at, with only a third of employees on an income of under £20,000 per annum conscious of the upcoming changes.
Worryingly, of those who are aware of auto-enrolment, only 16 per cent found out about the changes from their employer. Instead, nearly two thirds (61 per cent) say they found out through the news and media, showing the clear need for more communication and education from industry, employers and government.
Lynn Graves, Head of Business Development, Corporate Pensions at Scottish Widows, commented:
"With just three weeks to go until auto-enrolment comes into force, it is shocking that there remains such a huge gap in awareness, and that the media has had to step in to play a pivotal role in educating people about these changes. Auto-enrolment is designed for people who traditionally don't have access to a workplace pension scheme, such as smaller employers or those with lower incomes, and it is clear that information is still not reaching the audience it's intended to target. Educating these employees needs to be a top priority for the industry and the government."
Expected contributions double in just 12 months
In spite of the lack of knowledge about auto-enrolment, those who are aware of the scheme are overwhelmingly in favour of it. Only 11 per cent of UK workers plan to opt out of auto-enrolment, with 32 per cent of them stating that the main reason for this is a concern that they won't be able to afford the contributions.
In a further sign that UK adults are taking increasing responsibility for their retirement, the amount that workers are willing to pay into their workplace pensions has doubled since last year from £37.50 a month to £76.95, revealing a substantial shift in understanding of the levels of payment required. However, even based on this increased level of contribution, 33 per cent of people believe that it won't be enough to provide them with an acceptable standard of living in retirement, proving that auto-enrolment can only go so far in fixing the nation's lack of savings culture.
Lynn Graves continued:
"It is clear from our research that people are failing to save enough for their future especially in relation to retirement. While it is a positive sign that people are willing to pay more into their workplace pension, substantial work must still be done to encourage people to save enough for retirement and this is a challenge for government, the pensions industry and employers. As a nation we are slowly waking up to the reality of how we are going to be able to fund our retirement, many people recognising that they can't solely rely on the State to provide the majority of their income in old age."
Employers face pension pressure point
In line with the UK's diminishing reliance on the State to provide for their retirement - with just 2% of employees without a pension believing that the State will provide sufficient income at retirement - half of people now expect their employer's pension scheme to see them through old age, placing a significant responsibility on employers.
Indeed, this year's report shows that workers have high expectations of their employers, with 74% of employees believing that the workplace should give them full financial advice and information on retirement planning. Further illustrating the importance of these financial benefits, over half (53 per cent) of people said that their employer's pension scheme was an incentive to stay with the company.
In order to deliver on this expectation the industry has to create innovative solutions which help employers comply with auto enrolment and enable workers to better plan how much they need to save for retirement.
