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THE INVESTOR
H
ow are we doing as a
nation to ensure a
comfortable retirement
for ourselves?The
government’s recent announcement that
the State Pension age will rise by a year
to 68 between 2037 and 2039 – seven
years earlier than planned – comes as
little surprise, given the pressure on
public finances and the combination of
rising life expectancy and a shrinking
workforce. But it is a stark reminder that
the onus is increasingly on us to make
our own provision if we hope to enjoy a
decent retirement income, and to think
carefully about when we take retirement.
In some respects, the news on the
UK retirement front is encouraging.
Automatic enrolment, whereby
employees have to choose to opt out
of the pension scheme put in place by
their employer (rather than opting in),
has seen no fewer than 7.7 million
employees enrolled into a workplace
pension since 2012, according toThe
Pensions Regulator, and by February
2018 even the smallest businesses will
be on board. Its latest estimate is that
as at April 2016 the proportion of
eligible employees saving into a pension
Changes to pensions policy
bring benefits to some and
disadvantages to others.
Investors need to find a
way through the confusion
rose to 78%, up from 55% four years
earlier.
1
Automatic enrolment is getting
more young people onto the pension
path.A ScottishWidows report found
that 80% of 22 to 29 year-olds – a group
notoriously disengaged from pension
saving – are now contributing.
2
Of
course, the earlier people start building
a pension pot, the more realistic their
retirement goals become.
But automatic enrolment is by no
means a panacea for all our pension
woes. One concern is that the statutory
minimum contribution under automatic
enrolment is tiny – just 2% of earnings,
split between employee and employer.
That is set to rise, but even after April
2019 it will be a mere 8% in total (3%
from the employer).To put that into
context, Royal London calculates that
a worker with a target retirement
income of half their pre-retirement
income and who saved only the
statutory minimum, starting from the
age of 22, would have to work until
they were aged 71.
3
Worryingly, there is also evidence
that young people under financial
pressure will be inclined to opt out
of automatic enrolment when they are
By Faith Glasgow
PENSIONS:
WHICH
WAY
NEXT?
68
The State
Pension age
will rise by one
year between
2037 and 2039
78%
Proportion
of eligible
employees
saving into
a pension
£4,000
The money
purchase
annual
allowance
has been
slashed from
£10,000 to