“Nearly a decade on from the biggest shake-up of pensions this country has witnessed, there continues to be positive signs that the nation is on the right path towards adequately saving for life after work. The proportion of individuals who are confident that their income in retirement will provide the standard of living they hope for has increased from 42% in 2008 to 53% in 2017 and there has been a sharp increase in the proportion of private sector employees expecting to receive a private pension in retirement, increasing from 63% in 2013 to 73% in 2017.
“However, among the self-employed, there has been a material decline in the proportion expecting to receive any income in retirement from a private pension, reducing from 57% in 2006 to 43% in 2017. This mirrors the decline in pension membership by the self-employed, emphasising the fact that that those outside the scope of workplace auto-enrolment are falling behind when it comes to retirement saving. With increased numbers becoming self-employed year-on-year, and with the increased use of “gig” economy-style employment practices, we could be witnessing a self-employed pension car crash in slow motion.
“It is clear that there is a long way to go. A considerable number of people are still unsure whether their income will provide them with the standard of living they aspire to in retirement and the report suggests that people around the age of 50 still do not have a clear understanding of when they are going to retire, with only a ballpark age and figure in mind.
“There is a real danger that people are sleepwalking into retirement without the necessary retirement provisions. Setting clear goals and financial targets are vitally important for good retirement planning and people must start thinking as early as possible about the age at which they want to retire. The changes to the rules on pension ‘wake-up’ packs should go some way in getting people ready for retirement, but it is still too early to tell and by the age of 50 it may already be too late.
“The report demonstrates that Automatic Enrolment (AE) has had a substantial effect on pension provisioning amongst the young, with 88% of 22 to 25 year-olds participating in a workplace pension compared with only 20% before the introduction of AE. This provides even more evidence that the government’s policy is working well and comes on-top of the recent Automatic Enrolment evaluation report, which found that despite the increase in minimum contribution rates, there has only been a moderate increase in those who have decided to stop contributing to their pensions.
“There was always a danger that as employees see a greater proportion of their money go out of their pay at the end of each month, they will not be able to resist the temptation of taking the income today and stop contributing to their pensions. With opt-out rates increasing only marginally from 0.72% in 2018/19 to 0.76% in the first quarter of the 2019/20 financial year, this has not been the case and employees have resisted the temptation.“