As the legislation approaches its second anniversary, the annual report from Scottish Widows finds that the number of people on incomes of between £10,000 and £30,000 saving adequately for retirement has risen steadily from 34% in 2012 when auto-enrolment was introduced to 50% in 2014.
Even those for whom retirement is a considerable way off are feeling the benefit of auto-enrolment, with the number of people aged 30 to 49 saving adequately for retirement now at 49%, up from 42% in 2013. However, despite this success, there is still an awareness gap among younger age groups about the importance of saving early for retirement, with only a fifth (21%) of 22 to 29 year olds and a third (32%) of 30 to 49 year olds agreeing that the age to start saving for later life is 25 or younger.
Scottish Widows calculations show that although most people do not think about saving for retirement until their 30s, starting to save five years earlier could add almost a fifth in retirement income, or £725 annually. Starting to save 10 years earlier could add an extra £1,500 to annual income in retirement.
Additionally, in spite of the success among these at-risk groups, there is still a small proportion of people who do not feel able to take advantage of auto-enrolment. 3% of employees who were auto-enrolled this year have opted out, with the top reasons cited including a lack of money for 29% of this group and other financial commitments, such as credit cards and unsecured loans (23%). Those in their 20s (6%) and those with four or more dependent children (7%) were the most likely to opt out.
Lynn Graves, Head of Business Development, Corporate Pensions at Scottish Widows, commented:
“Auto-enrolment is designed to help shore-up the financial futures of groups that may not be in such a strong position to prepare adequately for retirement on their own – particularly lower income groups and younger people who are yet to establish the savings habit. In this respect, this year’s results are extremely encouraging as the reform is more widely understood and welcomed by these groups as it rolls out to a wider cohort of employees. Our research shows that 77% of people are now aware of the scheme, rising from 39% in 2012 and 65% in 2013, and that 65% of the UK population is positive about the effect of auto-enrolment.
Lynn Graves continued: “While these findings are encouraging, there is still some work to be done to ensure that the message is getting through about the importance of starting to save as soon as possible. Our calculations have shown the huge impact that starting to save earlier can have on your retirement income, so it is essential that people understand the bigger picture when it comes to planning for retirement.
“The introduction of auto-enrolment, alongside the reforms to retirement planning announced in the Budget, have created a unique opportunity to engage employees and educate around pensions. It is a crucial moment for the industry and government to work together and focus its collective efforts to ensure that auto-enrolment is the success it deserves to be."
