New peak for pension saving, focus turns to adequacy

Lack of engagement with pensions has long been a source of concern and many across the industry have said the increased saving due to auto-enrolment will not be enough to provide many with an adequate income in retirement.

Source: Scottish Widows

Provider Scottish Widows’ ‘Retirement Report 2015’, published last weekstates 56 per cent of people are saving enough for retirement, growing steadily from 53 per cent in 2014 and 45 per cent in 2013. Prior to 2014 retirement saving had been declining in the UK.

We think there’s a role the government can play in driving the market forward

Matthew Oakley, Which?

Speaking at the launch of the report, experts called for a range of changes to pensions policy, such as lowering the earnings threshold for auto-enrolment eligibility and the creation of a semi-public provider to create retirement products.

Toby Strauss, chief executive of Scottish Widows, said: “We and all other providers are struggling with the volume” of customer requests following the changes.

He added politicians, the industry and regulators “should be having a conversation” about what else needed to be done to improve members’ pension savings journey, such as simplifying the pensions system and extending the reach of auto-enrolment.

“Our experience and what we’re learning tells us we should do it,” he said. “And reduce the earnings band so that more self-employed people and women are caught.”

The study showed that women were at particular risk when it came to saving adequately, with 52 per cent saving 12 per cent of earnings as the provider recommended, compared with 60 per cent of men.

Praise for auto-enrolment

While Scottish Widows attributed the growing levels of adequate saving to the success of auto-enrolment, it said smaller employers had seen a drop in the proportion of their employees saving adequately, with only 40 per cent saving enough compared with 47 per cent in 2013.

But figures released this week by the Office for National Statistics for the period July 2012-June 2014 indicated a growing confidence and understanding of pension saving, with 40 per cent of individuals saying employer-based pension schemes were the safest retirement option, compared with 35 per cent for the period July 2010-June 2012.

Source: ONS

In addition, only 8 per cent of respondents said they had no knowledge of workplace pension reforms in Q2 of 2014, compared with 40 per cent in Q3 2012.

Matthew Oakley, head of financial services policy at consumer rights group Which?, said: “We think there’s a role the government can play in driving the market forward.

“In the way it created Nest, why can’t it create a similar organisation to provide a backstop to simple, good-value products that consumers can engage with?,” he said, “and in that way both guide the market and drive the market for consumers? But also drive value for money, as we see with Nest.”

Oakley added the group also wanted to see increased levels of protection for people who are not actively engaged with their pension, for example through the introduction of a charge cap on drawdown products that are sold internally.