More people are putting money into a workplace pension than ever before, with 59% of employees now saving adequately for retirement, compared to just 43% in 2013, according to new research.
Scottish Widows, in its Retirement Report 2019, defines ‘saving adequately’ as being over the age of 30 and putting away at least 12% of income into a defined contribution pension, or whose main source of income in retirement will be a defined benefit scheme.
People who are saving adequately feel more positive about their retirement prospects, with 33% feeling good about their savings, compared to 20% of others. They also tend to be male (59%), have an average age of 46, and are earning above-average income.
But while that’s all good news, there’s still work to be done to support workers who are not saving as much. Typical wage levels are still below those of 2005, so many people have struggled to save more than the bare minimum for retirement. Since April 2019, that has been 8% of earnings – still some way short of Scottish Widows’ 12% target for adequacy.
Young employees are not prioritising pension savings, with 60% of those aged 22-29 saving less than 12% (compared to just 36% of 50-59-year olds). Housing costs – both rent and saving for a deposit to buy a property – account for around £725 per month of this age group’s finances. In contrast, they put aside just £100 a month for retirement.
And, there’s still some way to go to solve the puzzle of how to get employees interested in pensions. Thirty-eight per cent say they do not know how much they are saving and 49% are not preparing adequately for retirement.
So, what can business do?
It’s great news that many more people are at least saving something towards retirement, mostly thanks to auto-enrolment. But as Scottish Widows’ report shows, some age groups need more help than others. Here are three ideas that could help:
Get young people engaged
Retirement can fall far down the priority list for young workers, especially when buying a house feels like a more attractive and useful goal. But starting early means saving less to achieve the same outcome: to get to a lump sum of £1,000 at age 65 means putting away £142 if you’re aged 25, compared to £615 when you’re 55.
Help staff with their overall financial wellbeing
Life puts hurdles in the way of retirement savings, from everyday money pressures, to dealing with unexpected expenses. Financial wellbeing, such as helping staff to build a financial safety net that can protect them against shocks, can keep them on track for retirement as well.
Make the link between saving and spending in retirement
– the figures on a benefits statement don’t really help people understand what sort of lifestyle their savings will buy them in retirement. A ‘mid-life MOT’ or other form of advice can help employees think about what sort of lifestyle they want when they retire – and whether they are saving enough to achieve it.
Please contact us if you would like us to help you provide workplace-based financial education and advice.