Families neglecting opportunities offered by current workplace pensions

Article date: 21 May 2011

  • Just 28% of UK family heads are actively paying into a workplace pension1
  • However, 74% of families would be happy to contribute to a scheme if their employer matched their contributions
  • Only 15% will opt out of auto-enrolment - but there are some concerns.

Families are viewing auto-enrolment as a positive step towards bridging the pensions gap, according to research from the second Aviva Family Finances Report. Three quarters (74%) of family heads say they would be happy to contribute to a scheme if their contributions were matched by their employer.

This comes in contrast to the fact that the majority of UK family heads1 (72%) do not currently contribute to a workplace pension, citing affordability as a major barrier. However, the report also suggests that almost all (96%) families do have some disposable income after essential purchases each month, which indicates affordability might not be the only obstacle. 

The findings were revealed in the second quarterly report from Aviva, which has been designed to better understand its customers, specifically the financial issues faced by the 84% of the UK who live as part of a family2.

The majority of UK family heads (72%) do not belong to a workplace pension scheme either through choice (20%), ineligibility (4%), a lack of knowledge (11%) or because their employer does not offer one (43%). For the one in five who choose not to belong, 40% say they simply can’t afford to (see below for further reasons).

Reasons behind not belonging to an existing workplace pension scheme

Reason

Overall

Full-time

Part-time

Men

Women

Can’t afford to

40%

35%

55%

31%

46%

My company has not told me enough about it

16%

18%

15%

28%

10%

Worried about return on investment

10%

13%

3%

6%

13%

I have not got around to it

10%

12%

5%

9%

11%

The age of auto-enrolment
With the Government confirmation that auto-enrolment will be implemented from 2012, the report looked at people’s reactions to this. Just 15% of people would choose to opt out when auto-enrolled – with more men (17%) than women (14%) of this opinion. 

However, while there was much positive sentiment, the findings revealed that significant education needs to be done about the existence and benefits of the scheme. Indeed, 20% had no real thoughts on the issue and 12% were worried that auto-enrolment might not be right for them. Affordability continues to be a concern for families as 16% expressed concern as to how it might impact on their take-home pay.

Relatively small contributions can add up
When questioned about auto-enrolment, 74% of families said they would be happy to contribute some of their salary if this sum was matched by their employer. The most popular amount was 5% of annual salary (23% of respondents) followed by 2% and 3% of annual salary (10% and 3% of respondents respectively). 

A 5% contribution of the typical (median) UK salary of £25,879 could equate to a pension pot of £252,438 over a 44 year working life (taking into account matched employer contributions, inflation and investment growth). The current average annuity pot is less than £30,000 and this therefore suggests that auto-enrolment could be a significant step towards reducing the UK’s pensions crisis.

Annual pension saving for median UK salary earner (£25,879)

% of salary contributed

Contribution by employee

 

Total over 44 year working life (assuming matching employer contributions)

 

Monthly

Annual

Total pension pot using Aviva’s pension calculator

(as of 9 May 2011)

Monthly retirement income, including state pension*

1%

£22

£259

 £51,716

 £572

2%

£43

£517

 £103,428

 £773

3%

£65

£776

 £155,140

 £939

4%

£86

£1,035

 £206,852

 £1,104

5%

£108

£1,294

£258,564

 £1,269

6%

£129

£1,553

£310,276

 £1,435

7%

£151

£1,812

 £361,988

 £1,600

*Using Aviva’s pension calculator assuming no tax-free cash is taken at retirement. Figures given are only estimates, fund values could be more or less than this, that fund values can go do as well and the value of a pension fund could be worth less than has been paid in.

Paul Goodwin, head of pensions marketing, Aviva, said: “The UK is facing one of the largest pensions crises in Europe3 so it is vital that we consider what can be done now to help customers plan their retirements for the future. As the Government has recognised by its planned auto-enrolment programme, workplace pensions have a significant role to play in meeting this challenge. 

“There is much work to be done though as only 28% of UK family heads are currently paying into a scheme. And while many people cite affordability as a reason for not joining, our research suggests that for many funds are available, but are often prioritised elsewhere.

“A lack of understanding around pensions is also seriously hampering take-up rates, so for the long-term interests of families in the UK, all parties concerned - the government, product providers, employers and employees themselves - need to work hard to ensure that auto-enrolment is a success.”

To see a full copy of the Aviva Family Finances Report see: www.headlinemoney.co.uk

–ends–

Download Aviva Family Finances Report - Spring issue PDF (2.1MB)

If you are a journalist and would like further information on a specific family group, please contact:

Aviva Press Office
Sarah Poulter: 01904 452828 / 07800 691569: sarah.poulter@aviva.co.uk

The Wriglesworth Consultancy
Lee Blackwell / Emma Beresford: 020 7427 1400 / l.blackwell@wriglesworth.com

1 Full-time employee family heads ie primary income earners.

2 Based on customer profiles and Government data Aviva has recognised the six most common types of modern family as:

  1. Living in a committed relationship with no plans to have children
  2. Living in a committed relationship with plans to have children
  3. Living in a committed relationship with one child
  4. Living in a committed relationship with two or more children
  5. Divorced/separated/widowed with one or more children
  6. Single parent raising one or more children alone.

3 UK Savings Gap Research carried out by Aviva in September 2010.

Methodology:

Management information was provided by Aviva and the remaining data was sourced from the Aviva Family Index which used findings from over 2,000 people who are members of one of the seven groups of families identified above. This report is a definitive look at the personal finances of families in the UK. Not only does it look at personal wealth, income sources and expenditure patterns but also tracks how these change across the different types of family unit.

In addition to the regular data, each quarter a spotlight will be shone onto a different relevant topic with auto-enrolment being the choice for May 2011. 

Notes to editors:

Aviva is one of the world's largest insurance groups* with 53 million customers worldwide and 46,000 employees.

Aviva’s main activities are long-term savings, fund management and general insurance, with worldwide total sales of £45.1 billion and funds under management of £379 billion*.

In the UK, Aviva takes care of its 19.2 million customers by helping them look after their future, protecting what’s important – from their health to their homes, their cars to their business – and saving for the future.

Aviva has a 10.5%** share of the UK life and pensions market and insures one in six homes and one in 10 cars in the UK. It is also one of the oldest UK insurers, with a heritage stretching back more than 300 years.

RAC, which is owned by Aviva, provides breakdown and insurance services for individuals and businesses and has around seven million customers.

Aviva is carbon neutral worldwide, and is ranked in the top 10% of socially responsible companies globally by the Dow Jones Sustainability World Index. In the UK, Aviva invested £3.8 million into local communities in 2009. Read our corporate responsibility report at www.aviva.com/cr.

Aviva’s global Street to School programme is working in partnership with Railway Children in the UK to get children living on the streets back into education and everyday life. Find out more at www.aviva.co.uk/street-to-school.

The Aviva media centre at www.aviva.com/media includes images, company and product information and a news release archive.

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* based on gross worldwide premiums at 31 December 2009

** Source: ABI data released August 2010

 

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