Almost seven out of 10 lower-income earners who have a workplace pension say they cannot afford to make further contributions due to rising living costs.
This research, by Legal & General Investment Management comes almost 10 years after the launch of automatic enrolment. LGIM says it shows that while AE has been successful in helping more than 10m employees save for retirement, significant challenges remain ahead.
The research found many financially vulnerable groups are still slipping through the AE net. LGIM says it has identified a ‘education gap’ particularly among younger workers, the lower paid and female employees – many of whom remain outside AE.
The cost of living crisis is putting particularly pressure on these lower income groups. A third of lower income earners said they had already opted out of a workplace pension because they could not afford the contributions.
The findings show many of these workers do not realise they have the right to join these schemes if they ask their employer. It found that 62 per cent of younger workers didn’t realise they could ask to be enrolled.
The survey also found that 38 per cent of low-paid workers would have joined their workplace scheme if they’d know they had the right to do ask. One respondent who currently earned £9.8k per year at a bar, claimed that if they had known about the £10k threshold, they have taken more shifts to take them over that amount and ensure their employer contributed towards their retirement.
These issues particularly affect younger and lower-paid female workers. The research shows of those aged under 22 who are making contributions into a pension scheme, 67 per cent are male, while just 30 per cent are female.
LGIm says this reflects the higher proportion of women with earnings below the AE threshold, with many working part-time or in multiple jobs and missing out on employer pension contributions as a result.
Another of the reasons for this stark divide appears to be the fact that many women are simply not receiving the relevant information from their employer. Of those young females without a pension, 50 per cent said this was because it wasn’t offered to them, while only 28 per cent of young men cited the same reason as to why they weren’t in a workplace pension scheme.
A significant majority of younger workers (72 per cent) believe that employees aged under 22 should also be automatically enrolled, with the same proportion also wanting to see a more progressive system that offers additional support to low earners.
The age threshold for younger workers and the rules on multiple jobs were seen as a barrier to contributions, with workers deeming both rules to be problematic. An engineering apprentice thought it was unfair that he wasn’t receiving employer contributions, when doing the same job as colleagues aged 22, whereas a takeaway driver earning £11,500 across two jobs, was also perplexed at missing out on employer contributions.
LGIM co-head of defined contribution Rita Butler-Jones says: “There’s no doubt that auto-enrolment has been a huge success as more people than ever are saving for their retirement. However, far too many workers, particularly the lower paid, are still likely to face pension poverty in their later years if they remain excluded from the system. At L&G, we fully support practical measures such as lowering the current age and earnings thresholds to give more people the opportunity to be enrolled into a workplace pension.
“Millions of Britons are facing tough spending choices as the cost-of-living crisis continues to bite and many could, understandably feel forced to take decisions about whether they contribute to a workplace pension. That’s why it’s essential to ensure that as many people as possible understand pensions, such as the value of employer contributions and how those multiply over time, so they can make their spending choices on an informed basis.”
When LGIM asked all three cohorts what might make them more likely to join and pay into a pension scheme, there were some clear recommendations. The top factor cited by both low wage workers (84 per cent) and younger workers (80 per cent) was reassurance from the government that other state benefits would not be affected.
Among female workers, 87 per cent suggested a tax break where the government matched contributions up to a certain limit.
Stuart Murphy, co-Head of defined contribution at LGIM adds: “Some employers may need more support around their obligations in offering scheme membership and pension benefits and how they can be promoted. We acknowledge that providers such as Legal & General have a role to play in delivering clearer, more engaging communications that explain the benefits to members. However, we also recommend a truly collaborative approach by the government, regulators and the financial services industry to ensure that pensions are better understood.”
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