2018 – the year of the workplace pension?
As we near the end of 2017, over 9 million people have been enrolled into their workplace pensions. The programme of ‘automatic enrolment’ started back in 2012 and will complete its roll out across the UK in early 2018, by which time almost all employers will have a workplace pension for their employees.
As a policy designed to nudge people into saving for their retirement, it’s difficult to argue with its success. It’s reversed years of decline in pensions saving and heralds a new generation of savers; those who can take control of how they save, where they invest and indeed how they ultimately spend their money later in life.
But 2018 is another big test. The first five years of the policy have been about getting employers to set up schemes and to get everyone in. It’s achieved that. The next two years is about getting contribution levels up to a more significant level.
In April 2018, contributions will increase from the current legal minimum of 2% of salary (1% from employer and 1% from employee) to 5% of salary (2% from employer and 3% from employee).
So far, around 9 in 10 people have stayed in their workplace pension after being enrolled. It’s crucial that similar numbers stay in as contributions start to increase, if indeed people are going to have a decent pot of money to retire on.
Contributions will increase again in April 2019 to 8% of salary (3% from employer and 5% from employee).
Some people suggest that the success so far is entirely down to inertia, and that had people paid more attention to what was happening they’d have opted out.
I don’t buy that.
Notably, people in their 20s have been more inclined to stay in than people in their 50s. With the challenges facing younger people at the moment, you’d have perhaps expected the reverse. Do young people pay more attention in doing what they know is intuitively right (in this case, saving for the future)?
Even if inertia is behind the success of getting 9 million people saving so far, I don’t believe we can rely on that getting them through the next few years as contributions start to increase. Quite the contrary, I think we need to socialise the idea that most people save for retirement through a workplace pension.
For young people, the prospect of retiring is clearly a long way off and therefore probably an alien concept. But the concept of saving – or, perhaps more accurately, investing – is a little more interesting. Managing a savings account with a significant boost from both your employer and the taxman every month holds some appeal.
For those in their 50s and for whom retirement is a little closer, it still pays to save. With options to take pensions from 55 in whatever way you choose, having even a small pot will give you options.
I hear plenty of people talking about how they regret not saving. I don’t recall ever having heard someone saying they regret having saved.
Perhaps 2018 will go down as a turning point in our savings culture. The year it became a social norm again to save.
Maybe 2018 will be the year of the workplace pension.
Tax and legislation may change, the information here is based on our understanding as at 18/12/2017. Your own circumstances will have an impact on tax.
The value of your fund can go down as well as up and you may get back less than you paid in.