Many of the 10 million UK employees currently auto enrolled into a workplace pension will see their take-home pay fall after 6th April 2019 when minimum contribution rates rise.
The auto enrolment minimum rate will increase from 5% to 8% of qualified earnings, with employers paying at least 3% and the remainder paid by employees.
A recent BBC News report highlighted that some in the industry are concerned this increase could lead people to opting out of their pension schemes, dubbing the move “auto-enrolmageddon”[i].
In contrast to this view, Alan Morahan, Managing Director, DC Consulting at Punter Southall Aspire, a workplace pensions, investment and savings company, says the new regulations present employers with a great opportunity to reinforce positive messages about the benefits of long-term retirement saving to their workforce, and highlight the consequences of opting out.
Morahan says, “People’s pay packets will be affected by the contribution rises and those on tight budgets will feel it most. However, this should be balanced by the benefits increased contributions will have in the future, helping more people towards enjoying a financially secure retirement.”
He also points out that the last time contributions rose the number of employees opting out was low. Just 0.7% of employees opted out of their scheme in the three months following the first increase in contribution rates in April 2018, compared with 0.6% for the previous four years[ii].
Morahan says the way in which companies communicate the contribution rises will be important, particularly as employees are increasingly looking to their employers for guidance on pensions.
Punter Southall Aspire’s research report into pension communications entitled, ‘It’s Time to Change,’ highlighted that the majority of employees want better communications and more pensions support from their employers. Out of 2,000 employees surveyed, 72% want more financial education to help them save for the future.
Younger workers especially need greater guidance. According to the Retirement Report Adequate Savings Index by Scottish Widows 2018[iii], more than one in five people aged 22-29 years old (21%) are still not saving for later life, with a further 20% saving significantly less than 12% of their income, the minimum amount recommended by Scottish Widows.
Alan Morahan says, “Auto enrolment has succeeded in getting more people to save for retirement and increasing their awareness of pensions, but employees still need more encouragement to save more. Employers could be more proactive in their communications rather than relying on their pension providers to take the lead.”
“Our research also highlights that pension communications need to be fun, exciting, jargon-free and relevant to people at different stages of their life and careers. Messages about the benefits of saving now and what this could mean for the future should also be promoted. It could be as simple as communicating that a little extra saved each month now could make the difference between being able to afford a holiday or new car, or not, in retirement.
“To support effective pensions communications, companies can also use technology and tools such as MyAspire, our online savings portal, which can help to boost employees’ financial wellbeing and their engagement with savings.”
For more information visit: www.psaspire.com