The recent Joint Institute Pensions Survey 2014 conducted amongst some 362 members of the Chartered Institute of Personnel and Development (CIPD) and Pensions Management Institute (PMI) revealed that only 24% of those taking part in the survey thought auto-enrolment would deliver the Pension Commissions goal of providing a pension of 15-18% of earnings for a median earner at the point of retirement. Even amongst this 24%, more than half felt this was not going to be sufficient income to retire on even when combined with the state pension. A recent study by Aviva says the average pensioner needs £1,200 coming in each month to have the sort of retirement they are hoping for. That, according to Aviva, means £14,185 p.a. for every year of retirement for a single pensioner and nearly £30,000 a year for a couple.
It’s no wonder that Aviva’s study of the over 40s found three out of ten in the UK would be working for at least a few years past state retirement age, and a further two out of ten expected to have to work until they drop. What’s the answer? Well if we truly believe everyone in society should have the right to be able to retire fairly comfortably at a reasonable age, given that the Government is not about to find a lot of extra cash, then we have to find a way to make sure people save more during their working lives. It is in my view inevitable that the amount both employees and employers put into automatic enrolment schemes is going to have to rise dramatically once all employers have passed their staging date. Moreover, for employees earning over the automatic enrolment threshold, and who have not already reached their lifetime allowance (the maximum amount you can accumulate in pension benefits tax free in your lifetime), the government is going to have to look seriously at making larger contributions compulsory and removing the right to opt-out.
The concept of automatic enrolment is a sound one, and opt-out rates have been lower than expected, which is pleasing. However, now comes the hard task of greatly increasing the amount people are currently saving. It might not be a popular thing for both employers and employees to do in the short term, however, if you want people to be able to retire reasonably comfortably before the age of 70, I see little choice. Reasonably comfortably by the way does not mean they will be able to afford those trips abroad or a new car. More like a second hand car and a B&B in Blackpool!
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