Automatic enrollment has fueled a rise in the number of people saving for retirement, according to new official data from the Office for National Statistics (ONS). However, there is still concern that people are falling behind in saving for retirement.
Since the reforms were introduced in 2012, the proportion of private sector workers saving in a workplace pension plan has more than doubled, from 32% to 75%.
However, many employees are not eligible for automatic enrollment, including low-income and younger workers.
There is also concern that the minimum auto-enrollment contribution rate may not be enough and paying only the minimum amount could spell disappointment in retirement.
Tom Selby, head of retirement policy at AJ Bell, said: “Automatic enrollment has certainly been successful in dramatically increasing the number of people saving something for retirement.
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He said: “Even those covered by automatic enrollment are at serious risk of retirement disappointment.
“A 30-year-old contributing at least up to state retirement age spending their 25 per cent of tax-free cash could only enjoy an income of around £10,000 a year until their mid-90s.
“Someone earning £30,000 a year who is automatically enrolled for the first time on their 40th birthday on the same terms faces an even bleaker retirement, as their fund could generate an income of only £5,500 a year until mid-’90s.”
He warned that many Britons could be headed for an insufficient pension fund to support them in retirement.
Selby concluded: “To put it bluntly, as things stand, the self-employed are like the Titanic, unknowingly on a collision course with a giant retirement iceberg.
“Without urgent action, this will become the next UK pension disaster.”
Becky O’Connor, Director of Pensions and Savings at Interactive Investor, called for the scope of automatic enrollment to be extended to help more Britons contribute to a pension.
She said: “If we want more people to be less dependent on state pension in retirement, it would help if the limits around participation in automatic enrollment were relaxed.
“While it will often be more difficult for low-income people to save money for the future, some low-income people can tolerate losing some cash now in exchange for a decent retirement later.
“These could be low-income workers with multiple jobs, those with partners who earn more, or those younger workers who still live at home to save money on living costs, for example.
“Given the enormous difficulties that many will face surviving on state pension for decades to come, it makes sense to automatically enroll more young people and people with lower incomes now.”
Ms O’Connor believes that younger workers in particular could benefit from inclusion in automatic enrollment.
She concluded: “The investment growth benefits of contributions early in working life are well worth having.
“The minimum age set at 22 assumes that someone starts a career after going to university, which may not be an accurate assumption.
“A career could start at 18 for someone who doesn’t go to college. It doesn’t seem right to me that these young non-graduate workers lose four years of pension contributions”.