Rishi Sunak grilled by Neil on state pension increases
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Pension savers are struggling at the moment with Scottish Widow’s latest Retirement Report showing the lowest earners in the UK have missed out on an estimated £122million worth of employer contributions. This is the result of job and income losses seen during the pandemic and many are now faced with a “stark choice between paying the bills and saving for the future.”
The report, which has been tracking the nation’s attitudes towards saving for retirement since 2005, found 31 percent of low income earners, defined as those earning £10-£20,000 per year, have experienced a financial decline because of the pandemic, and 23 percent now expect to have to “work until they drop.”
As a result of job and income losses, Scottish Widows estimated low earners will have missed out on a combined £122million in pension contributions from their employers during COVID-19, a figure that almost triples to £325million if including personal contributions.
In light of these findings, Scottish Widows is calling for “urgent reforms” what would entitle those on low incomes to continue to receive contributions from their employer, if they are unable to meet the costs of employee contributions during a period of financial hardship.
Pete Glancy, the Head of Policy at Scottish Widows, commented on this.
He said: “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.”
Scottish Widows noted “despite the challenges presented by the pandemic”, there is some cause for optimism as the proportion of people saving adequately for retirement – those putting away the recommended minimum 12 percent − reached a record high at 61 percent this year.
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This was largely driven by younger savers, with six percent more 30–39-year-olds now saving adequately compared to last year.
This, Scottish Widows explained, was 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.
It noted that while this was positive news considering the financial difficulties faced by many, the positive impact of auto-enrolment has begun to plateau in recent years and “fresh thinking” is needed to ensure progress is continued.
Mr Glancy concluded on this: “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 one percent 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 percent of earnings going into your pension will provide a basic standard of living in retirement, a minimum of 15 percent 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.”
Under the current rules, a worker, whether they be part or full time, will have to be enrolled into a workplace pension scheme if they meet the auto enrolment criteria.
This criteria is as follows:
- The worker is based in the UK
- They aren’t already in a suitable workplace pension scheme
- They are at least 22 years old, but under state pension age
- They earn more than £10,000 a year for the tax year 2021/22
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