Auto enrolment five years on
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It’s already been five years since auto enrolment was first introduced. It’s proved to be a great first step in helping individuals take ownership of retirement saving; employees are staying opted in and employers are complying with their duties. Some employers are even going above auto enrolment requirements to increase the likelihood that employees have sufficient savings for retirement.
To help understand employee attitudes to auto enrolment and pension saving, in 2017 we surveyed over 1,200 people for their views, the key findings were as follows:
Strong support for workplace savings
Auto enrolment has seen a staggeringly low level of opt outs. Almost 9 in 10 (88.5%) had stayed opted in to their pension scheme and continue to make monthly contributions.
Even amongst those who have opted out there is support for auto enrolment - only 53.6% felt they had made the correct decision by leaving their pension scheme. 28.6% would have liked to have carried on saving but couldn’t afford it. And 74.9% believed pension saving should be compulsory (83.9% of those aged over 55).
From the low level of opt outs and the support shown in our survey, it’s clear employees think staying in their pension scheme is the right thing to do.
Why did people leave?
So, why do some people choose to opt out?
Amongst the people we surveyed, the top two reasons we found were affordability and prioritising spending over saving. When able to select multiple answers, the reasons people gave for opting out were:
- 48.2% couldn’t afford the contributions
- 23.2% would rather have the money now than in the future
- 17.9% had left their job
- 10.7% didn’t see the point in having a pension
- 10.7% left for another reason
- 8.9% didn’t trust pension saving
Considering the economic pressures of the past 5 years, the results are surprising. Only around 5% of the total employees surveyed have opted out due to affordability and less than 1% of those surveyed said they don’t trust pension savings.
The communication challenge
So how much can we determine from these results?
According to The Pensions Regulator, 9 million people are now saving for their future as result of automatic enrolment, which is a strong testament to the work carried out by employers and their pension schemes to date.
The big challenge is to convert pension scheme membership into adequate income in later life. Our Working Lives report revealed that 12% thought that minimum pension contributions would provide them with a comfortable retirement, while 28% thought it would be enough to get by on.
Under current rules, unless employees have below average earnings or have been saving since their 20’s, auto enrolment contributions will only be part of the solution to providing an adequate income at retirement.
Our figures suggest that a contribution rate of 12.5%* is a more appropriate contribution target, with higher figures for those who can’t save for 40 years, and those who earn more than average.
Many members have retirement dreams; what they need is a plan to realise them.
If you’d like to talk further about these findings or about auto enrolment, please get in touch with your Aviva contact.
*Aviva’s auto enrolment pre review report, Nov 2016