More than 13.4 million people in the UK are now signed up to a workplace pension scheme thanks to the Government’s auto-enrolment initiative.
The scheme, now celebrating its second anniversary, is designed to ensure that employees, who have not previously had access to a workplace pension, are able to save into one in the future.
However financial experts warn that celebrations for the new scheme maybe short lived, as many new savers may retire to a pension pot that is smaller than the one they expect to receive.
Under the current provisions, the total amount contributed by employers and employees under auto-enrolment will rise year-on-year to a modest maximum of 8 per cent by 2017 – not enough to guarantee a comfortable retirement in most cases.
Speaking in ‘The Times’, a number of experts have said that people should aim to save a percentage of their annual income equal to half their age when they start saving and continue to save that amount until they retire.
This would mean that if an individual started saving for retirement at age 30 they would need to save roughly 15 per cent of their salary for the remainder of their working life.
Put off the decision until they are 40 and they would have to raise the amount they save to 20 per cent, and so on.
For a 30-year-old, the difference between saving the 8 per cent required under auto-enrolment and the 15 per cent suggested by experts, results in a huge disparity in income at retirement.
It is also important to note that that self-employed people don’t qualify for the scheme, while employees aged under 22, or over the state pension age, along with those earning less than £10,000, are not automatically included – potentially leaving more than nine million people in the UK without a private pension.