From 6th April 2019, auto-enrolment pension contributions are set to rise, but how many Brits really understand what they are paying into and when they’ll be able to access it? New research from pensions advice specialist, Portafina, reveals how clued up the nation is when it comes to their pension pots.
A worrying 47% of working Brits said they don’t understand how auto-enrolment works, with 1 in 7 (14%) admitting they ‘don’t know’ what auto-enrolment means. In addition, over a third (35%) are unaware of how much they pay into their pension each month, even though workplace pension contributions are taken directly from their pay packet, meaning this amount is easily found on their payslip.
Even with the rise in workplace pension contributions, only a third (33%) believe their pension pot (including the State Pension) is on track to maintain the living wage of £15,269 a year from the age of 65. While 16% correctly estimated they would need £200,000 saved in their pension today to achieve the current living wage figure, 41% thought they would need much less than this.
Jamie Smith-Thompson, managing director at Portafina commented on the findings:
“Those that qualify for a workplace pension will notice more coming out of their pay packet from April 6th. This is because employee’s contributions into a workplace pension scheme via auto-enrolment have risen to 5% (including tax relief). Coupled with increased employer contributions, this could have a massive positive impact on the standard of living Brits can look forward to in retirement.
“Auto-enrolment is currently available to everyone over the age of 22, meaning those fresh out of higher education could have the opportunity to start saving for their future immediately (providing they earn over £10,000 a year and usually work in the UK). However, over half (54%) of 18-24-year olds felt that a lack of education at school has stopped them from taking their pension seriously. It’s also shocking to see that they were the most likely age group to wrongly think that they couldn’t access their pension until they were 65.
Iain Ross, a 27-year-old marketing professional from Leeds, struggles to understand what his pension means for him and his future. “I’m not sure how much I contribute to my pension each month and I have no idea where my payments from my previous job are, or how much I paid into my pension while I was there. I am worried about money when I retire because I don’t understand how I could possibly put away enough to support myself for longer than a few years.
“I think I know so little about my pension partly because I haven’t taken the time to educate myself, but also because no-one has really explained it to me in simple terms. I think education throughout school would definitely help people to take their pension seriously from a young age and realise that it’s relevant to us now, not just when we get older!”
Jamie Smith-Thompson added: “It’s worrying that so many people still don’t understand what a pension is. Saving for your long-term future can only be a good thing and the earlier we get into these habits, the better. Auto-enrolment means you will be saving into a pension without having to think about it. Which is great on one hand, but it could mean you have questions about where your money is going or how it is being invested.
“There are people that can help you understand pensions, such as The Pensions Advisory Service who can offer you guidance and cover the pension basics. Or, if you want to talk about how your money is invested you should speak with an independent financial adviser who is regulated by the FCA. They can offer you advice and discuss what the best options are for you.
“Part of the pension knowledge problem does point towards a lack of education from a young age. As a parent of young children, I am keen to see an improvement in financial education in schools. Although I do appreciate some of the barriers teachers and schools experience with providing lessons on this subject matter. It is something the government needs to address.
“At the end of the day, it doesn’t matter whether you’re saving for your future via your workplace pension scheme or are currently contributing into a personal pension, both are great! It’s the fact that you’ve started saving now for your retirement that’s truly important.”
To find out why opting out of auto-enrolment could cost you thousands, please visit: https://www.portafina.co.uk/blog/opting-out-of-auto-enrolment-could-cost-you-thousands/