Following a review, the new Pensions Minister, Torsten Bell has confirmed auto-enrolment (AE) thresholds will be maintained at the current levels* for 2025/26.
*This means a minimum contribution of 3% from employees, and 5% from employers to bring total pension contributions to 8%.
Jonathan Watts-Lay, Director, WEALTH at work, comments; “It can be difficult for someone to judge how much they may need to save for retirement as everyone has different circumstances and different expectations, However, we know the current levels are too low and may not provide an adequate standard of living for many.”
In fact, according to the Pensions and Lifetime Savings Association (PLSA ), a single person will need about £14,400 a year to achieve the minimum standard of living (this would cover all a retiree needs plus enough for some leisure activities such as a week’s holiday in the UK and eating out occasionally); £31,300 a year for a moderate standard of living (one foreign holiday a year and more frequent eating out); and £43,100 a year for a comfortable standard of living (this would cover all a retiree needs plus two foreign holidays a year and some luxuries such as regular beauty treatments). For couples, it’s £22,400, £43,100 and £59,000, respectively.
Watts-Lay adds; “Unfortunately, there seems to be a general lack of pension understanding and engagement. Our research found that more than a fifth (21%) of employees have no idea how much their pension is worth, with almost a quarter (24%) having no idea how much they will need to have for a comfortable retirement.”
Watts-Lay explains; “The AE minimum is just not going to be enough for many. Whilst I understand the decision made to maintain thresholds could be due to the business cost of employers now having to fund the increase in National Insurance and minimum wage, I worry that many individuals are now at risk of sleepwalking into an unhappy retirement because they are unknowingly not saving enough and will have insufficient funds.”
That said, he adds, “Employees need to look at their pension statement, and understand the pension income they are likely to retire on based on their current contributions, and if this matches their expectations or if they need to save more. In fact, even small increases can have a significant impact on someone’s pension savings. For example, someone in their 20s, saving just 1% more each year into a workplace pension can boost future savings by 25%.”
Finally, he comments, “People need support to understand their finances including ways to save money and budget, as well as how to make the most of their pension savings for later life. This is why many employers offer support including access to financial education, guidance, and investment advice for employees, so it is always worth speaking to them to find out what help is available.”