Making the most of workplace pensions.

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Jonathan Watts-Lay, Director, WEALTH at work discusses with The Times, the impact of auto-enrolment (AE) on individuals and what employers can do to support employees with their pension savings.

He comments; “There is general consensus that even when AE contributions reach 8% this will not provide most members with a pension pot that will afford them a comfortable replacement retirement income. Recently the PLSA called for lifetime average contributions on all earnings of 12% a year and we would support that.

We would also like to see some form of auto-escalation, so when a member gets a pay rise they automatically increase the percentage they are paying until they reach a level that is likely to produce an adequate income.

One of the big dangers of setting contribution levels too low is the impact of inertia. Whilst AE has been a great success in getting people to save into pensions (and even a little is better than nothing), if the member gets used to paying at 8% (they pay 4%) they may believe this is the ‘right’ number and not consider paying more. For schemes that offer higher matching rates this can be a costly oversight for members. Often employers will match to higher levels yet their default contribution is either in line with AE requirements or when higher, not as high as they are willing to go and members will and do miss out. Our experience is that there are many schemes where employees could take advantage of more ‘free money’ but don’t understand the benefits on offer.”

To read the full article in The Times, please click here.