Millions of workers face having only a ‘basic’ level of income at retirement because they are not saving enough.
The majority (57%) of all defined contribution (DC) savers say they are paying in the 4% minimum contribution set by the government, according to workplace pension provider The People’s Pension.
Alan Morahan, managing director of savings and pension advice company Punter Southall Aspire (PSA), warned this was not enough to plan for inflation rises in the future.
Speaking to HR magazine he said: “Auto-enrolment contributions probably need to be double what they are now for society to avoid a cost-of-living crisis in the future.
“People may not like it but a 15% pension contribution, not 8%, is actually a more realistic starting point to give yourself a better chance of a decent level of income for life after work.”
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The introduction of pension auto-enrolment in 2012 has been a significant step towards financial security for many, Morahan said.
According to the data, however, just 7% of people realised that the default rate of 8% will only deliver a basic retirement – an annual income of £10,900-£20,800.
Morahan added: “Obviously with the cost of living crisis we are living through, people are more concerned about paying their bills today than saving for tomorrow, but government still needs to act to take forward its 2017 review of automatic enrolment.”
One cost-effective way to help employees with their pensions, he suggested, is a salary sacrifice, where an employee gives up salary in exchange for a higher employer pension contribution.
Salary sacrifice also offers National Insurance contribution savings for both employees and employers.
He added: “Those savings could be used to boost pension contributions. Some employers have, for whatever reason, not adopted salary sacrifice but, in these difficult times, I would encourage them to reconsider their thinking.
“It could help them and their employees.”
Jeanette Makings, head of financial education services at Close Brothers Asset Management, added that many young people may struggle to increase the amount they pay into their pension.
Speaking to HR magazine, she said: “They’re planning to have a family, they’ve still got debts they’re wishing to pay off, etc.
“Upping their pension may not be the right answer for them at that point.”
She recommended HR educate on the benefits of starting a pension early.
She added: “Those people coming straight out of school, or entering the workforce for the first time, may never have heard of a pension in their life.
“It would be really beneficial to understand that from their employer.”