A new survey has shown that Auto Enrolment, which will compel both eligible employees and employers to pay into pensions, could result in an extra 6 million people saving for their retirement and create an additional £12.5 billion in retirement savings by 2017.
Under the government’s plans all eligible employees will be automatically enrolled into a pension, to which they and their employer will have to contribute. The plans are being rolled out between 2012 and 2017, with the exact start date dependent on the number of employees in each business.
Although employees will be automatically enrolled into a pension they will have the choice to opt out, which has concerned many experts who are worried about possible low retention rates especially during difficult economic times.
The ‘Keep on Nudging’ report was produced by Standard Life and the University of Edinburgh and the findings were based on research undertaken with 600 employers who represent employees earning between £18,000 and £45,000, known as “the squeezed middle”.
Perhaps surprisingly 48% of those people surveyed said they would find it easy to save an extra £50 per month and in response to those people worried about low retention rates the survey found that up to 82% would be prepared to stay in the scheme if information was presented “clearly and effectively”.
The survey said that “close to 70% of people would not find it difficult to save an additional £50 per month if they had to. And 48% admitted they would find it easy.”
It continued “To put this into perspective, an additional £50 a month would double the individual pension contributions of someone on an annual salary of £20,000 saving at minimum auto-enrolment levels.”
The report also found the main reason, given by over 60% of those who planned to opt out, was because they could not afford it, other reasons included a third who said they did not trust the government and 28% who did not trust pensions.
The report said that these figures confirm the need for financial education.
“Making carefully designed communication a priority can ensure the success of auto-enrolment.”
It continued “By our calculation it will add six million new people saving for retirement, with increased annual retirement savings of £12.5bn annually by 2017 – fully in line with the DWP (Department for Work and Pensions)’s ambition.”
A Department for Work and Pensions spokesman said: “Our reforms will get millions saving into workplace pensions, many for the first time.”
“It’s vital that people understand these changes, so we are working with industry and consumer organisations on ensuring people know how automatic enrolment can help them save for their retirement.”