Insurance firm Scottish Widows is calling for the UK auto-enrollment threshold to be “scrapped,” and the minimum age of participation lowered in its annual retirement report.
“This year’s study shows some of the hardest-working and most financially vulnerable members of society are slipping through the automatic enrolment net because of minimum earnings thresholds,” Robert Cochran, a retirement expert at Scottish Widows, said in the report. “This unfairly impacts multi-jobbers, who could be working the equivalent of full-time hours, yet without the financial benefit of having a single employer.”
Only workers earning more than £10,000 a year are automatically enrolled in a workplace pension. And although those who earn £6,036 can choose to participate, Scottish Widows says many of them are not doing so. The report said this means lower earners and those working part-time or in multiple jobs miss out on valuable employer contributions into a pension.
“The current threshold puts an unfair barrier in the way of low-paid workers and their ability to prepare adequately for retirement,” said the report. “We want to see it scrapped entirely to let all workers benefit from employer contributions.”
The report said that although the number of younger people saving for retirement has risen, a significant proportion still aren’t saving anything.
“Lowering the minimum age for auto-enrolment to 18—as the government has proposed—is a great start,” said the report. “We want to see this introduced with urgency given these latest findings.”
Scottish Widows is also calling for the minimum contribution, which will rise to 8% from 5% next year, to be raised even further. The firm recommends that the minimum amount workers should contribute to their pensions is 12% of their income.
“We know that the minimum contribution level is lulling people into a false sense of security,” said the report. “Continuing with auto-escalation beyond 8% will ensure that more workers who are auto-enrolled can build up to saving enough for the retirement they want.”
The report also criticized a “one-size-fits-all” approach to encouraging savings, saying that age and salary are not the only factors in determining preparation for retirement.
“Government and industry needs to move from messages targeted at the population at large to communicating directly with different cohorts in society,” said the report.
Tags: auto-enrollment, Pension, Scottish Widows, UK