Workplace Pensions - an introduction


What do you think is the biggest single challenge that you will face in your lifetime?

There are undoubtedly dozens of answers to that question, but how many of you will say ‘to retire with enough money to allow me live comfortably’? Probably fewer than you think.

While many may already be enjoying retirement and some may be young enough to not have even considered it yet, a good sized chunk of people will be among the ‘disengaged’; those who roll their eyes to the heavens whenever they are encouraged to squirrel away money they can’t afford, when they are already burdened with a mortgage or rent, blessed with children, or maybe just want to enjoy the fruits of their labours now.

£144 per week

That is the amount that we should all get from our new flat rate State Pension from April 2016, provided we meet the qualifying criteria. How does that sound as an amount on which you could comfortably live?

It won’t fit many people’s idea of comfortable. Nevertheless, 20% of the workforce in the United Kingdom - almost 6 million people - face the very real prospect of living their retirement on £144 per week because they have no other pension provision [Source: Scottish Widows 2013 Workplace Pensions Report].

They may have other sources of wealth such as savings, ISAs, property or other assets they could sell and boost their income, but why have they given up tax benefits that could have boosted the value of at least part of these savings by at least 20%?

When you consider that the average size of a personal pension fund at retirement  is currently around £40,000, which would give a fixed annual income from 65 of around £2,260 (Source: Moneyfacts 2 January 2014), it is clear that many of the remaining 80% who are saving for retirement aren’t saving enough.

None of this is new of course. Pensions have been news for many years and many people have become pretty jaded by being told they aren’t doing enough. This fatigue even led the financial services industry to stop talking about pensions, preferring instead terms such as ‘Retirement Provision’ or ‘Accumulation Phase’.

Successive governments have wrestled with the problem of how to make the schemes for civil servants, police, teachers, the NHS and many other government workers affordable. Many people, whether self employed or working in the private sector, look enviously at friends or family who are in government or employer run pension schemes that will pay a percentage of their final salary as a pension. Some even concluded that there is no point in doing anything for themselves as they couldn’t possibly save enough. To compound the issue, past misselling scandals have also diminished the confidence of the public. People have seemingly found every possible reason not to think about their pension. 

Nonetheless, the unpalatable truth remains; there are too many people saving too little for their retirement and the Government saw that the only way to address this was compulsion, so from October 2012 they introduced Automatic Enrolment into Workplace Pensions.

Between now and 2017 every employer (regardless of size) and every employee will be affected.  Do you know how you’ll be affected?