Over two-thirds of workers do not realise there will be a rise in the minimum amount they must pay into their workplace pension scheme, new research reveals.
Some 68 per cent of people are unaware the minimum amount they need to save into their workplace pension will increase from 2018, according to a new report by Scottish Widows.
The current contribution rate is two per cent of an employee’s earnings, with at least one per cent added by the employer.
But there will be a gradual increase in pensions contributions and from 6 April 2019 workers will need to pay eight per cent of earnings – a minimum of three per cent of this total must be contributed by the employer – into a saving scheme.
Despite a lack of knowledge regarding changes to the initiative, 78 per cent of those surveyed in the Scottish Widows Retirement Report 2016 say they will remain enrolled in their workplace scheme – and only three per cent will opt out when contributions increase.
But more than a quarter of people surveyed (27 per cent) say they can’t save any more into their pension scheme due to financial pressures.
“Young people, in particular, appear disengaged with workplace savings but the good news is that they are twice as likely as the rest of the nation to save more if they had more information from their employer,” says David Holton, director of pension propositions at Scottish Widows.
Young people and pensions contributions
According to the report, a quarter of people aged between 22 and 29 lack understanding of auto enrolment, which will prevent them saving for the future.
But this age group is also twice as likely as the rest of the UK workforce to save more – if they have sufficient information from their employer.
A third of those questioned in this age category also believe their employer should provide advice on how to budget for a pension scheme, while 31 per cent of those aged 30 to 39 also agree.
“The industry and employers alike need to continue encouraging all workers by providing them with ongoing support on the benefits of being more engaged with longer term savings,” adds Holton, who explains that the Financial Advice Market Review aims to help consumers access such advice.
Holton believes employers should also be mindful of using advances in digital technology when it comes to plugging knowledge and engagement gaps, especially when it comes to younger workers.
“The longer these workers can save, the better their position will be when it comes to securing a financially stable income for later life,” he adds.