Auto-enrolment shouldn’t be seen as a silver bullet.
How much money you should be saving for your retirement is a key question when visualising the type of retirement lifestyle you want. However, the 13th annual Scottish Widows Retirement Report reveals that, despite the success of auto-enrolment – 80% of 22 to 29-year-olds are paying something into a pension – 70% of them are not putting away enough. This puts at risk their ability to achieve their desired income of just over £23,000 a year for a comfortable retirement.
The research was carried out online by YouGov across a total of 5,314 nationally representative adults in April 2017. The report found that average contributions are £184 a month (including employer contributions), meaning they can expect an annual pension of just £15,200 including the current State Pension.
ANNUAL RETIREMENT INCOME
A 30-year-old contributing the current minimum of 1.00% to their workplace pension (matched by their employer) will achieve an income in retirement of £9,734. And even when the minimum contributions rise to 8.00% (employee and employer combined) in 2019, they will only achieve an annual retirement income of £14,047. This is a shortfall of almost 9,000 on expectations.
There is also evidence that more people will begin to opt out of pension schemes as contributions increase through auto-escalation from April 2018. When 22 to 29-year-olds were asked if the planned increases would affect how they save, less than half (48%) said they were committed to staying enrolled.
THE LATER YOU START, THE HARDER IT GETS
If someone starts saving into a pension at 25 years of age, they would need to put aside £293 each month to reach a £23,000 annual income. Not starting to save until 35, monthly savings would need to jump to £443, and at 45 this would be £724. For someone who left retirement saving to their 50s, they would need to put away £1,445 a month to enjoy a £23,000 annual pension.
There is no doubt auto-enrolment has been a success in kick-starting the savings habit for millions – but it is not a silver bullet. Autoenrolment may well be lulling people into a false sense of security that they are putting away enough for a comfortable retirement.
 Based on someone in their 20s looking to retire at 68 and saving £184 each month
 The estimates are derived using the Pensions Calculator on the Money Advice Service website, assuming someone earning the UK average of £27,271 a year
 The estimates are derived using the Pensions Calculator on the Money Advice Service website, assuming someone earning £30,000 a year, with contributions being supplemented with a 4% employer contribution. The calculations allow for inflation, both in discounting back the final results so they’re in ‘today’s money’ and in assuming that contributions increase with earnings each year.
A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.
PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.