Almost half (47%) of those not retired say that they cannot afford to save right now due to the rising costs of everyday living, a Pensions and Lifetime Savings Association (PLSA) survey has revealed.
The news comes following widespread reports of UK households struggling to make ends meet following high inflation – sending everyday bills soaring – as the country tries to recover from the effects of the Covid-19 pandemic. Yet despite the concern about saving for the immediate future, savers are still recognising the importance of long-term planning and having a suitable pension in place for when it comes time to retire.
The PLSA’s survey – which took place at the start of the year – also found that around a third of people with a pension said that they spent some of their time over Christmas reviewing their finances; including their pension (31%). This was especially true for those aged 18-34 year olds (41%) compared with of those aged 55+ (24%).
Looking beyond the current uncertain economic outlook, the PLSA argues that the Government should increase the level of automatic enrolment contributions from today’s 8% of a band of earnings to 12% of all salary in the late 2020s.
Under its preferred approach, by 2030, the pension contribution would be “levelled-up” – split evenly between employers and employees – with the employer paying 3% more than now and the employee paying only 1% more than now. If the employee cannot afford the extra 1%, they should be given the choice of staying at the current level of 5%.
This view appears to have strong backing with just over four in 10 (41%) believing that pension contributions should rise from the current level of 8% to up to 12% with only 16% disagreeing with the proposal.
In the interim, the Government is right, as it has promised, to introduce automatic pension saving for 18-year to 21-year-olds and to increase pensions saving by basing the contribution on the first pound of savings, rather than only above the lower earnings band of £6,240. The Government has said it will do this by the mid-202os and we urge them to put the change in legislation as soon as possible.
Savers see the value in pension planning
Positively, in its survey, the PLSA heard that around a third (32%) said that they can afford to contribute more to their pensions now in order to boost their retirement income. This news was backed-up further by just over three quarters (78%) of those not retired saying they think it is a good idea to pay into a workplace pension.
Education key to savers understanding their pensions
While savers are seeing the value of pensions, the PLSA’s survey discovered that there remains a number of key fundamental misunderstandings by savers about their pensions, with many unsure how their contributions were being invested on their behalf. The survey revealed that only a third of people know the minimum contribution rate that people make via Automatic Enrolment.
Additionally, around two fifths (39%) are not sure if the Government gives tax relief on their pension contributions and around a third (31%) are unsure if their pension savings are invested in stocks, bonds, or other investments.
Nigel Peaple, Director of Policy & Advocacy, PLSA, said:
“Many savers face substantial financial difficulties over the short term due to the Covid-19 pandemic but, over the longer term, the public see the value of saving towards retirement in a workplace pension. Moreover, while half of those responding to our survey say they cannot afford to save more now, a third do consider themselves able to do so.
“Many people do not fully understand the complexities of pension saving so it is important that the Government’s policy on pension saving takes account of this. In particular, alongside industry measures like the Retirement Living Standards which help people understand how much different lifestyles cost in retirement, the rules of automatic enrolment should be designed to give people an adequate income.
“We, therefore, support the Government’s promise to extend pension saving to younger people in the mid-2020s and to increase the amount of saving so that it is on the first pound of salary. But it is also important that the Government “levels-up” pensions so that, by the end of the decade, pension contributions are increased from 8% to 12%, split evenly between employers and employees.”
Source – https://www.plsa.co.uk/Press-Centre/Press-Releases/Article/Cost-of-living-crisis-means-almost-half-say-they-cannot-afford-to-save