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Retirement saving not as rosy as figures suggest: Stuart Price, Quantum Advisory

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Written by: Will Abbott | Posted 16 October 2017 13:16

Retirement saving not as rosy as figures suggest: Stuart Price, Quantum Advisory

The latest figures from the Office for National Statistics (ONS) released Thursday 28 September have revealed a record number of people in the UK are now saving for retirement.

The Department for Work and Pensions (DWP) announced that pension scheme membership had increased by 17 per cent from last year and now stands at 39.2 million people. While this sounds like positive news for the pension industry, in reality the amount being saved is not nearly as impressive.

The huge upsurge in pension members is largely a result of the auto enrolment regime established by the government in 2012. The current system sees those aged between 22 and state retirement age and earning more than £10,000 pay a minimum 1 per cent of their earnings into a pension scheme, while their employer also contributes 1 per cent.

From April 2018 this will increase to 3 per cent from the employee and 2 per cent from the employer and the following year this will grow to 5 per cent and 3 per cent respectively.

Although the latest ONS figures have shown a significant increase in those now signed up to an occupational pension scheme, the obvious worry is that when the minimum contribution levels increase, so too will the number of people opting out of the scheme. The survey results next year and the following year will make interesting reading.

Education is vital when it comes to the public saving for their retirement. Many think that because they are in a minimum contribution scheme, they will be able to enjoy a comfortable retirement, but this is far from the case, and the government need to make people aware of this.

My rule of thumb to give yourself the best chance of a decent income in retirement, the total rate paid into a defined contribution arrangement should be half your age. So, if you are aged 40, then the total contribution from yourself and your employer should be 20 per cent of your salary.

With the average amount being paid by employees at 1 per cent and employers just over 3 per cent as you can see we are not even scratching at the surface with the amounts that we should be saving.

Another key point to emerge from the ONS’s latest survey is the amount of people switching jobs who are accruing many small pension pots. Although no bad thing, it does require the employee to keep a track of all the schemes in case one ‘slips through the net’.

The planned introduction of the Pension Dashboard in 2019 will no doubt help to address some of these points as it will show an individual all the private pension arrangements that they have along with their State Pension and will provide an indication of the overall income they could expect in retirement, which may, in a good way, frighten individuals into saving more.

Overall, the survey was relatively expected, but it will be very interesting to see what develops over the next year or two.

Stuart Price, is Partner and Actuary at Quantum Advisory in Bristol which also has offices in Amersham, Birmingham, Cardiff, and London Quantum provides pension and employee benefits services to employers, scheme trustees and members. For more information about Quantum Advisory, please visit: https://quantumadvisory.co.uk.

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