BRITS are heading for a retirement shock as alarming new figures show that the amount people are saving into a pension is actually falling.
On average, people put just 3.4 per cent of their salary into their pension in 2017, down from 4.2 per cent in 2016, according to the latest Office for National Statistics data.
In slightly better news, the total number of people saving into a workplace pension has reached a record 41.1 million high.
But experts have cautioned that many people will not realise that they aren’t saving enough.
Alistair McQueen, head of savings and retirement at financial provider Aviva, pointed out that private sector pension contributions had tumbled from a high of 9.7 per cent of salary in 2012.
He warned that this will have major implications for the more than nine million people who have been introduced to workplace pensions since automatic pension enrolment was introduced by the Government.
What is pension auto-enrolment and how does it work?
HERE's what you need to know
- What is pension auto-enrolment? Since October 2012, employers have had to enrol their staff into workplace pension schemes as part of a Government initiative to get people to save more for retirement.
- When does auto-enrolment apply? You will be automatically enrolled into your work’s pension scheme if you meet the following criteria:
– You aren’t already in a qualifying workplace scheme.
– You are aged at least 22.
– You are below state pension age.
– You earn more than £10,000 a year in 2018/19.
-You work in the UK.
- How much do I contribute? There are minimum contributions that you and your employer must pay.
Minimum contributions are being gradually increased over time.
Your minimum contribution applies to anything you earn over £6,032 up to a limit of £46,350 (in the tax year 2018/19). This includes overtime and bonus payments.
You can choose to pay more than the minimum contribution and some companies will offer to match if you pay more.
He said: “Millions of employees have embraced auto-enrolment since 2012, in the belief that it will deliver them a comfortable retirement.
“But based on the current system and today’s data, they’re in for a shock, with many currently on the road to living on less than the minimum wage in retirement.”
Kate Smith, head of pensions at financial provider Aegon added: “The headline figures about the increased number of people saving into pensions gloss over some very concerning issues in workplace pensions
“While more people are saving, they still aren’t saving enough.”
Minimum contribution rates into workplace pensions are gradually being stepped up over time under auto-enrolment and will reach eight per cent by April 2019.
But most experts say that people need to save between 12 and 15 per cent from when they first start working in order to have a comfortable retirement.
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Clare Moffat, head of business development at Royal London, said: “The increase in the minimum contribution for auto-enrolment will help but as it currently stands these increases will still not be enough to deliver a decent retirement income for the majority of people.
“People need to start thinking about the type of retirement they want to have and how much they need to save to achieve it.
“Small regular increases can have a large impact on the quality of life in retirement.”
Am I on track for a comfortable pension?
IF you are only putting in the minimum amount for your workplace pension then you are not saving enough for a comfortable pension..
The earlier you start saving, the less you’ll need to put away each month. Here’s how much you’ll need according to consumer group Which?
- Which? reckons that you need to be saving £131 into your pension a month from age 20 to be able to have a comfortable pension.
- Anyone over 30 would have to save up to £198 a month.
- If you start savings at age 50 you need to be saving a staggering £633 a month to be able to have a £26,000 a year income when you retire.
- These figures assume that your employer pays his or her part of your pension contributions.
- You will also receive a state pension depending on how much national insurance you have paid over your working life; the maximum amount you can receive is £164.35 a week.
The age at which people get their state pension is set to rise to 68 by 2037.
And research earlier this year found that people who move jobs regularly are set to lose £300 from their pension each year.
Meanwhile Brits who live and work abroad in Europe risk losing their pensions in a No Deal Brexit.
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