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United States
By Tracey Ward, Head of Business Development & Marketing at Generali UK Employee Benefits
“Anecdotally, Close Brothers Asset Management [CBAM] is seeing a small trend in employees postponing retirement due to working from home,” says Marcus Read, Director of Workplace Financial Wellbeing at CBAM, one of our Wellbeing Investment Matching partners and recent guest on a Generali webinar.*
This was echoed by our webinar attendees, the majority (55%) saying they’d noticed a growing trend of employees working beyond state pension age. Working from home might be helping facilitate this, but the key drivers are financial challenges, according to our attendees.
This perhaps comes as no surprise when you consider the ongoing impact of an uncertain UK economy. Lots of things are putting pressure on our pockets right now and, in turn, on the ability to save for retirement.
That said, pension prospects for many have improved thanks to Auto Enrolment (AE). Launched in 2012, it encouraged many people, who would have previously relied on the State Pension alone, to start saving for their retirement for the very first time. Eligibility starts at age 22, at a minimum contribution level of 8% (employer and employee contributions combined).
Auto enrolment has upped the ‘retirement savings’ ante, but has it created apathy?
Over 11 million people have newly enrolled into a workplace pension since AE was launched. Whilst great news, there’s also concern that AE has created apathy, with people only saving the bare minimum.
“Despite AE’s good intentions in encouraging people to save for themselves, there seems to be a sense of inertia now, with people thinking their retirement is all taken care of, and they don’t need to do anything in terms of long-term planning. This is a worrying trend,” adds Marcus.
1.6 million employees are still at high risk of falling short of a minimum income standard in retirement, according to calculations by the Pensions and Lifetime Savings Association (PLSA), based on its Retirement Living Standards.
“The PLSA’s publication of its Retirement Living Standards were a big eyebrow raiser. They make it clear that the state pension isn’t keeping up; it isn’t keeping people out of poverty,” says Marcus.
A comfortable standard of living for some, might be the bare minimum for others
The UK state pension currently stands at around £11,500 a year (2024/25). This is less than the PLSA’s minimum standard for a single person, at £14,400 a year (£22,400 for a couple).
“With the minimum standard, you’d just about manage to pay your bills, buy basic weekly groceries and enjoy one short holiday a year, but only in the UK,” adds Marcus.
The PLSA website outlines the standard of living you could have against each of its three standards; minimum, moderate and comfortable.
For example, the minimum standard states: around £50 a week on groceries; £15 per fortnight on takeaways; no car, but £10 a week on taxis and £100 a year on rail; a one week UK holiday.
For the moderate standard, the PLSA states an amount of £31,300 for a single person and £43,100 for a couple. And for the comfortable standard, £43,100 for a single person and £59,000 for a couple.
“When you look at how they break that down, some of the things in the ‘comfortable’ category, many would class as a minimum standard, such as a subscription to bundled broadband and streaming services,” adds Marcus.
So, what will the minimum 8% AE contribution give you in retirement?
The answer to this question depends on many factors. For example, at what age the individual started saving, what they earn over their working life, and how their pension investment performs over this time. However, online pension calculators are useful for providing an indication of predicted retirement income based on contributions.
Marcus explains: “If you use a generic pension calculator online, you can see that someone who starts saving into a pension at the age of 22, contributes a minimum 8% and is on about £25,000 a year, with perhaps a small amount of pay increase throughout their working life, staying in the same role, they’re going to come out with less than £200,000 pension pot. That’s a concern.
“It’s clear that as individuals and families we’re going to have to do a lot for ourselves to try to meet and exceed some of the PLSA’s standards, depending on what we require for our retired years.”
What can employers do to help?
Communicating the advantages of the company pension and benefits – on joining and ongoing. Educating the value of saving sooner, taking advantage of employer contributions.
Talking about money – talking about their financial wellbeing strategy and encouraging employees to improve their own financial health. “Financial education is on the agenda more than it ever has been, across all industry sectors,” says Marcus. “It’s about raising awareness of workplace benefits and helping people to take control of their finances, in relation to every life moment, including retirement.”
Encouraging – promoting the need for employees to regularly review their pension plans, update beneficiaries, review contributions.
Utilising - providers’ support, websites, tools, videos and statements to drive awareness. Also, speak to providers about innovative ways in which they might help. For example, Generali UK’s Wellbeing Investment Matching, where we’ll fund specific wellbeing support – such as financial education – for our Group Income Protection clients, where a need is identified and it’s not already covered by our added value support services.
Contribution levels – if there are matching arrangements above AE minimums, promoting them and encouraging take-up.
Access to individual guidance / advice – appreciating that employees needs are individual and, therefore, one-to-one support as early as possible in the retirement savings journey is valuable. “The pharma, legal and oil and gas industries are ahead of the curve there in our experience,” says Marcus.
*To access a free recording of Generali UK’s full 30-min webinar, entitled ‘How to tackle pension inadequacy’ in partnership with Close Brothers Asset Management, please email [email protected].
Disclaimer:
All information contained herein represents the views and opinions of the author as of the date of writing and is provided for general information only. Nothing herein constitutes or is intended to constitute financial or other form of advice and no individual should rely upon the information provided in making a specific investment decision without first seeking independent professional advice.
