Independent Financial Advisers Glasgow News & Guides

With just six months to go until the largest employers start automatically enrolling employees into pension schemes, Friends Life has revealed new research showing that 61% of consumers admit they are not confident in their own abilities to save enough to fund their retirement without government or employer intervention.

Just 39% believed they could save enough on their own, without being forced to save by the government or being auto-enrolled by an employer. 

The research also revealed that only 8% of respondents rate saving for retirement as their financial priority and less than half (48%) are making regular contributions into a work based pension at the moment. Around 19% don't have any pension at all, one in ten (11%) doesn't know how much they contribute to their pension and 35% save less than £100 a month.

When asked how they would feel if the government made it compulsory to save into a pension, nearly half (46%) said they would see it as a helpful way to ensure they got a decent level of savings. A quarter (24%) said they would view it as an additional form of tax that they wouldn't want to pay, while 30% said they didn't have any strong feelings about it.

Findings also revealed:

• 5% aren't sure whether they have a pension or not,
• 3% don't know if their employer offers a pension which they could be saving into already and 8% say they have declined to join their employer pension scheme,
• 33% say paying off debt is their top financial priority, and
• 15% say saving for a house deposit is the most important financial challenge to them.

Six months to go until Automatic Enrolment begins and new figures show that final salary pension scheme payouts will reach a record high and peak this year.

Statistics from the Department for Work and Pensions show that the average amount paid from Defined Benefit (DB) schemes will reach the highest ever level this year and the amount will fall thereafter.

The average DB pension in payment will peak at around £7,100 a year towards the end of 2012 and will fall to just above £2,400 a year by 2060, marking a significant shift in pensions saving.

Currently, around six million pensioners benefit from some form of DB scheme but only 10% of firms have final-salary schemes that are still open. Workplace pension reform will bring up to ten million people into pension saving from this year.

Starting in October, people working for the largest employers will be automatically enrolled into a workplace pension scheme. Smaller businesses will follow. Individuals, employers and the Government will all contribute to an employee’s pension.

The final building blocks for automatic enrolment have been put in place as the Government published its response to the consultation on the earnings threshold.

With just over six months to go before the largest employers begin enrolling eligible workers into pension savings, the response sets out that automatic enrolment rates for the next tax year will be aligned with tax and National Insurance thresholds. This will make it easier for firms who will not have to negotiate another layer of complexity.

Minister for Pensions Steve Webb said:

"The overwhelming response to our consultation was the call to align the automatic enrolment trigger with existing payroll thresholds. This will help firms make a success of these reforms, as they will be able to better understand who is eligible to be enrolled.

"These changes strike the right balance between getting as many people into workplace pension saving as possible and ensuring that we do not enrol some people who would not financially benefit from saving. People who are excluded from automatic enrolment will still be able to opt themselves in, benefiting from a contribution from their employer.

The new, single tier State Pension announced in the Budget will dramatically improve savings incentives for people on a low income."

The Government must review the rates each tax year.

A survey by the Chartered Institute of Payroll Professionals (CIPP) has found that the majority of employers (74%) have not started communicating to employees about automatic enrolment, which starts to roll in from October this year.

The CIPP survey, which polled 103 payroll, HR, accounting and finance professionals, also found that a small number of respondents (4%) were unsure of their staging date.

The survey also revealed that 61% of companies have decided where the responsibility for automatic enrolment lies; for most (42%) it will fall to payroll departments. For nearly a quarter of organisations (23.5%) it will fall to HR departments, 9% finance and interestingly over a quarter (26.5%) of all payroll, HR and finance departments will work together.

Automatic enrolment, otherwise known as the Workplace Pension Reforms, will be introduced from October 2012. Automatic enrolment will see every eligible employee enrolled into a qualifying pension scheme to which both the employer and employee will contribute. The Department for Work and Pensions have started communicating these changes through various media channels since January.

The TUC has urged the government to freeze the lower thresholds in the auto-enrolment regime - keeping the bottom of the earnings band on which contributions have to be paid (£5,564) and the earnings level at which auto-enrolment is triggered (£7,475) - at their current levels.

The government is set to introduce a new earnings trigger for auto-enrolment, following their review, which recommended that workers should only be auto-enrolled once their earnings rose above the income tax threshold (£7,475). They would still pay contributions from the bottom of the earnings band.

However, the TUC argues that women would be the main losers from the new earnings trigger as the vast majority of workers with pay between the lower limit of the earnings band and the income tax threshold are women working part-time. The auto-enrolment trigger should therefore be frozen, says the TUC.

The TUC believes that linking auto-enrolment with the income tax threshold is particularly damaging given the coalition plans to increase it to £10,000.

A TUC analysis of official earnings data shows that the new earnings trigger could eventually stop around two million women from being auto-enrolled into pensions.

More than half of corporate financial advisers think that up to 30% of UK workers could opt out of the government’s new auto-enrolment regulations due to be introduced from October 2012.

Independent research from Aviva shows that the majority (98%) of corporate advisers expect some degree of withdrawal by employees from workplace savings schemes they would automatically be enrolled into. Around 20% predict that half of all employees will opt-out, a further 59% forecast that there will be up to a 30% drop out rate, while only 2% expect there will be no drop out. Most worryingly though, half of all corporate advisers think that the largest proportion of opt outs will be in the 35 and under age group.

The research highlights the importance of engaging employees on the benefits of saving in the workplace early, particularly amongst younger workers, many of whom will be saving into a pension for the first time.

Of the top five reasons advisers gave as the main barriers to saving amongst the 35 and under age group, the largest proportion (80%) say they don’t think younger workers can afford to save, while:

• 72% say that they have other financial priorities
• 69% believe that they think they are too young to worry about their retirement
• 63% don’t think they trust pensions
• 47% say that they don’t think the younger employees understand the benefits of a workplace pension compared to other kinds of saving.

The widespread view amongst advisers is that younger workers live in the "here and now" and have other things to worry about at the moment, a view that is echoed by this age group themselves, whose main current financial goals are to buy a house (36%); pay off debts (34%) and pay off their mortgage (20%).

The Department for Work and Pensions (DWP) has published a package of regulations to help employers prepare for automatic enrolment into workplace pensions. 

This package, alongside the revised timetable for automatic enrolment published last week, is designed to make it easier for business to manage their new duties. With these regulations in place, the legislative framework underpinning these reforms is now almost complete.

The DWP has also published the Government’s response to the consultation published last summer on workplace pension reform regulations, and guidance on certifying pension schemes.

The consultation looked at arrangements to put into effect the remaining recommendations of the Making Automatic Enrolment Work Review on optional waiting periods and simplification of the certification process.

It also covered new statutory instruments on special occupations not included previously; seafarers, offshore workers and police not under a contract of employment.

A revised timetable for automatic enrolment was published on 25th January, giving employers clarity and certainty about their starting dates.

This followed the announcement, in November, that small firms would be given more time to prepare for automatic enrolment to help them out in exceptionally tough economic times.

As the economy continues to falter, employers in the US have become increasingly reticent about their employees' ability to successfully save for retirement, according to a new survey by Aon Hewitt. In response, employers are embracing innovative solutions to help rethink their retirement benefits plan strategies and assist their employees in better preparing for retirement.

Aon Hewitt surveyed more than 500 large U.S. employers, representing over 12 million employees, to determine their current and future retirement benefits strategy. According to the findings, just 4% of employers are very confident that their workers will retire with adequate retirement assets, down substantially from 30% in 2011. Additionally, only 10% of plan sponsors feel very confident that their employees are taking accountability for their own retirement success. Fewer than one-in-five employers (18%) are confident that workers will be able to manage their income during retirement.

While more than half (52%) of employers will focus on encouraging workers to take greater accountability for their retirement savings in the year ahead, they aren't asking employees to do it all on their own. Almost half (44%) of employers will focus on helping workers retire with enough money and most (60%) say that they will place a greater emphasis on helping employees understand and use the employer-provided resources available to them.

Employers also continue to enhance their defined contribution (DC) plan features. As in years past, plans will continue to add automatic features, in addition to expanding savings choices and offering employees more resources to help them meet their needs while in retirement.

Automatic enrollment has been one of the biggest retirement trends in recent years, and will continue to be in the year ahead, albeit with an enhanced focus on outcomes. Currently, 55% of plan sponsors automatically enroll workers in their employer-provided defined contribution plan, up from 24% in 2006.

The opportunity to benefit from employer contributions remains the single biggest reason for people to stay ‘auto-enrolled’ in new workplace pension schemes, according to latest research from the Association of British Insurers (ABI).

The ABI consumer survey suggests the introduction of auto-enrolment from October could not come fast enough for many as a way of bringing them out of the ‘savings stalemate’. Not missing out on employer pension contributions (47%) and on tax relief from contributions (14%) were the most popular reasons encouraging people to remain ‘opted-in’ to workplace schemes. This clearly shows that people see the value of their money being made to work harder by the extra top ups they will get from their employer and the Government.

Overall, more than half (53%) of people not already in a company pension scheme say they will remain ‘opted-in’ when their employers begin automatically enrolling them in eight months’ time, and this comes before any significant promotion of the new scheme.  With a further 30% of people still undecided, we could see even more remaining ‘opted-in’ and saving for their future. 

A similar scheme in New Zealand has seen the amount of workers saving for their pension more than double, with more than half of the country’s working population now enrolled. The UK could see even higher figures as its auto-enrolment arrangements will cover all eligible workers, rather than only those who are changing jobs or just starting work.

A revised timetable for when employers of all sizes must start enrolling their staff in a workplace pension has been set out by the Government.

Large employers, those with 250 or more employees, will not face any change in the date they are due to start enrolling their staff.

This follows the announcement in November that small businesses would be given more time to prepare for automatic enrolment to help them out in exceptionally tough economic times.

Minister for Pensions Steve Webb said:

“Automatic enrolment will begin on time this October, taking up to ten million people into pension saving, many for the first time ever, and all employers will be part of it.

"We have done all we can to ease any burden on business the reforms will bring and employers of all sizes now know the date they need to start enrolling their staff."

The timetable for employers to begin enrolling their staff starts with the largest firms first, followed by medium, then small companies.

Automatic enrolment will begin in October 2012. All existing firms will have enrolled their staff by April 2017, followed by all new employers by February 2018. This new timeline means that 70% of individuals will be automatically enrolled before the next general election.

The level of pension contributions will be phased in over time to help employers and individuals adjust. Full contributions will have to be paid from 1st October 2018.

A consultation and draft regulations with more detailed information will be published shortly.

Only 38% of working-age people - 11.6 million out of 30.4 million people - are saving into a private pension, the lowest level in the past ten years, new analysis by the Department for Work and Pensions (DWP) has revealed.

According to the DWP, this highlights exactly why automatic enrolment – introduced from October 2012 – is so critical.

The figures show a steady decline in pension saving between 1999/2000 and 2009/10, with the decrease being most dramatic among men and the under 40s.

While the overall number of people saving into a private pension fell from 46% in 1999/00 to 38% in 2009/10, pension saving among men fell from 52% to 39%. And among people aged between 20 and 39 years old pension provision fell from 43% to 31%.

The analysis also reveals a map of pension provision across the UK in 2009/10, with higher pension provision in the South East (43%), Scotland (42%), the South West (41%) and the East (41%), and lowest pension participation in Northern Ireland (33%), London (34%) and West Midlands (34%).

The Minister for Pensions, Steve Webb, has promised to protect the pension pots of people who move jobs often by abolishing Short Service Refunds for defined contribution occupational schemes. These refunds allow individuals to get their pension contributions back – leaving them without a pension.

The Minister also committed to taking action to prevent people losing small pension pots. A recently published paper looks to address the complexities in the current system that make it difficult for people to transfer their pension pots throughout their careers into one big pension.

Steve Webb said:

"I am concerned that people are at risk of losing their small pension pots as they move from job to job. I do not want to see people who are doing the right thing by saving, ending up with very little for their retirement because the system is too complicated. I want to make it as easy as possible for people to grow big fat pension pots."

A highly mobile jobs market and the introduction of automatic enrolment will lead to around 4.7 million additional small pension pots in our pensions system by 2050.

With the average person working for eleven different employers over the span of their career it’s vitally important that barriers are removed to growing big fat pension pots.

Options for consultation range from small changes to encourage transfers, to an automatic transfer system where pension pots could either be consolidated in one or more ‘aggregator’ schemes or move with people from job to job.

A recent survey by the Chartered Institute of Personnel and Development has found that while the majority (75%) of employers are fully aware of imminent changes to workplace pension schemes, not as many are prepared for auto-enrolment - less than one third (32%) of employers know the date on which the new rules will apply to them.

The Government has confirmed that automatic enrolment will begin on time in autumn 2012 and all employers will remain in scope.

The Institute of Directors (IoD) has called for the Government to postpone the phased introduction of auto-enrolment pensions for two years (until 2014). Under present plans employers will begin to automatically enrol staff onto pension schemes from October 2012.

The Government must not make a u-turn on its plans to start automatically enrolling all workers into a pension from next year, the National Association of Pension Funds (NAPF) has warned.

The seventh annual Scottish Widows Women and Pensions Report 2011 reveals that the number of women saving adequately for their retirement has reached the highest level in the report’s history, with 50% of women saving adequately for retirement, compared with 43% in 2010. Yet despite this new high, men are saving as much as £700 more than women each year due to a disparity in income levels.

The Pensions Bill, which will provide help for firms to automatically enrol staff into workplace pensions from next year, has now received Royal Assent and become law.

One in three people (31%) accepted a new job with no idea about whether it came with a pension, meaning they ignored a benefit that’s typically worth thousands of pounds a year, the National Association of Pension Funds (NAPF) has warned.

A recent report has detailed new research into the measures that need to be taken by government, employers and industry to ensure the plan for pension auto-enrolment is a success and make it easier for more people to save enough for their long term future.