Auto-enrolment has been a success in getting millions more saving into a pension but many aren’t saving enough, the Pensions and Lifetime Savings Association (PLSA) stated in its new report. Half (51%) wrongly believe the minimum auto-enrolment pension contribution level is the government’s ‘recommended amount’ to save, it found.
The government’s phased increases will see minimum contributions rise to 8% of band earnings in 2019. However, there is still a risk that this will not be enough to allow many savers to live comfortably in retirement.
The PLSA has called for the minimum level to increase to 12% of salary between 2025 and 2030; the amount that's needed to ensure retirees are financially secure it says. As part of this increase the PLSA is arguing for a 50/50 employer/saver split. This was widely supported by consultation respondents.
The Association said that there is widespread confusion among savers about the right amount to save and whether they’re on track.
It recommended more be done to help people achieve the standard of living they want in later life. This includes measures to increase contributions, helping savers better understand pensions and plan for the future, more support when people draw their pension, and making it easier to use other income sources.
The PLSA’s research also found that 74% think retirement planning would be much easier if the UK had retirement income targets, similar to the system currently used in Australia.
Such targets show the lifestyle someone could afford on different levels of income. There are three target levels covering ‘minimum’, ‘modest’ and ‘comfortable’. The PLSA has commissioned independent researchers to develop these and will work with the government and industry on how the targets might be rolled out.
Seven in 10 (70%) say targets would encourage them to save more, increasing to eight in 10 (78%) among Millennials (18- to 34-year-olds).
Nigel Peaple, director of policy and research at the PLSA, said that while the Association welcomes retirement income targets this system alone will not be effective.
“Millions of savers are confused about whether they’re on track for the lifestyle they want in retirement. We believe that a simple and widely-promoted system of retirement income targets would make it much easier for savers to know whether they are saving the right amount,” he said.
“However, targets alone will not be enough. Today we are setting out our vision for a retirement savings system that helps everyone achieve a better income in retirement. We are proposing a range of measures and would like the government, pensions sector and regulators to work together to take these forward.”
The PLSA commissioned Populus Data Solutions to undertake an omnibus poll of approximately 1,500 individuals aged 18 to state pension age (currently 65 for men, 60 for women) in the UK.