Low earners should be entitled to continue receiving auto-enrolment employer pension contributions even if they cancel their own contributions due to hardship, says Scottish Widows.
The call comes as the provider has calculated that cash-strapped low earners, earning between £10,000 and £20,000 a year, have missed out on £122m in pension contributions from their employer as a result of reduced income or cancelling their own contributions. When personal contributions are factored in, that adds up to £365m of lost contributions.
Scottish Widows is calling for reforms so that those forced to opt out of auto-enrolment to make ends meet will continue to receive contributions from their employer.
The provider says that, despite the impact of Covid, its savings adequacy index, which reflects those putting away a recommended 12 per cent of earnings, has hit a new all-time high of 61 per cent.
This progress is being driven by young savers, with 6 per cent more 30–39-year-olds now saving adequately compared to last year. This is due to a reduction in living costs, as well as the Government’s decision to continue supporting pension payments through the Coronavirus Job Retention Scheme (CJRS) for those working in shutdown sectors, a report from Scottish Widows shows.
The report shows that a third of those earning £10,000 to £20,000 per have reported a decline in their finances during the pandemic, with 18 per cent experiencing a drop in income.
This has compounded worries about retirement, with 54 per cent now concerned about running out of money in their later years and 23 per cent expecting to work until they drop.
Scottish Widows head of policy Pete Glancy says: “Covid-19 has had a massive impact on the nation’s finances, particularly on those who were already struggling financially. Those working from home have benefited from reduced commuting costs and everyday expenses, allowing them to boost their savings. But those on lower incomes – and less likely to have worked at home during the pandemic – have seen their finances hit hard and are leaning on savings to cover bills and short-term needs.
“The habit of saving for retirement has proved to be incredibly resilient given the financial pressures people have faced over the past year and even a modest growth of 1 per cent is positive news. But this also comes with a health warning. The positive impact of auto-enrolment has plateaued and we’re unlikely to see the number of people saving dramatically increase in the years ahead.
“While 12 per cent of earnings going into your pension will provide a basic standard of living in retirement, a minimum of 15 per cent is more realistic for anyone hoping to enjoy a more comfortable retirement. And there are great swathes of the working population – for example, the self-employed and those earning less than £10,000 – for whom auto-enrolment doesn’t apply. A radical rethink is now required to tackle the post-pandemic challenges.”
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