... as private sector pension contributions fall.
New figures1 confirm that private sector pension contributions are falling to minimum automatic enrolment levels, from a recent contribution high of 9.7% of salary in 20122 to just 3.4% in 2017 – with 1.2% from the employee and 2.1% from the employer.
This trend has major implications for the 9.8 million people who have been introduced to workplace pension since automatic enrolment was introduced in 20123. At automatic enrolment minimums, a typical 22-year-old would be on track for an income in retirement equivalent to just £6.55 per hour4 – significantly less than today’s national minimum wage of £7.83 per hour5.
Aviva advocates that this minimum contribution must be increased to at least 12.5% by 2028 – shared between the employer, the employee and the tax man. This would boost a typical 22-year-old’s income in retirement to an equivalent of £8.45 per hour6.
Today’s report also notes a record high number of small pension pots (“preserved pensions”) – 15.8 million. This is a 50% increase since automatic enrolment was introduced in 2012. This comes in the same week as the government committed itself to the delivery of the pensions dashboard7. The dashboard is the core means by which consumers will manage their ballooning number of small pots. Aviva has been a long-time supporter of the dashboard and today’s figures highlight the need to make urgent dashboard progress. The government’s feasibility study must include the requirement for all schemes to submit data and for state pension to be included if the dashboard is to be a success.
Millions of people are sleepwalking towards ‘less-than-minimum-wage’ at retirement.
To their credit, millions of employees have embraced auto-enrolment since 2012, in the belief that it will deliver them a comfortable retirement. But based on the current system and today’s data, they’re in for a shock, with many currently on the road to living on less than the minimum wage in retirement.
The proposed minimum saving rate of 8% of earnings, from 2019, is insufficient for millions of workers. We need to agree to further increases in minimum savings, failing to do so will bring misery to millions of workers.
Meanwhile, small pension pots are posing an equally large problem for millions of savers. This week’s ministerial statement gave the green light to deliver the dashboard, “facilitated by government”. We need to get facilitating, now!
In the news
1. Source: https://www.ons.gov.uk
2. Average contribution to a defined contribution occupational pension
4. Assumes eligibility for full new state pension … plus pension saving from age 22 to the future state pension age of 68; average salary of £27,000; automatic enrolment employee contribution of 5% of banded earnings (including pension tax relief); automatic enrolment employer contribution of 3% of banded earnings; investment growth of 2.5% per annum (after inflation); pension charge of 0.75% per annum; and assumes 75% of private pension fund is used to purchase a single-life inflation-linked annuity at retirement.
5. For those aged 25 and over.
6. The assumptions are the same as in point 4, except the 12.5% is based on full earnings (not banded earnings)
Notes to editors:
- Aviva provides life insurance, general insurance, health insurance and asset management to 33 million customers.
- In the UK we are the leading insurer serving one in every four households and have strong businesses in selected markets in Europe, Asia and Canada. Our shares are listed on the London Stock Exchange and we are a member of the FTSE100 index.
- Aviva’s asset management business, Aviva Investors, provides asset management services to both Aviva and external clients, and currently manages over £331 billion in assets (as at 31 December 2018). Total group assets under management at the Aviva group are £470 billion (as at 31 December 2018).
- Aviva helps people save for the future and manage the risks of everyday life; in 2017, we paid out 98% of all our claims across all our markets and insurance products. We paid £34.6 billion in benefits and claims in 2017.
- By serving our customers well, we are building a business which is strong and sustainable, which our people are proud to work for, and which makes a positive contribution to society.
- The Aviva newsroom at www.aviva.com/newsroom includes links to our image library, research reports and our news release archive.
- For an introduction to what we do and how we do it, please click here www.aviva.com/about-us
- Follow us on twitter: www.twitter.com/avivaplc/
- Follow us on LinkedIn: www.linkedin.com/company/aviva-plc
- For the latest corporate films from around our business, subscribe to our YouTube channel: www.youtube.com/user/aviva
- We have a Globelynx system for broadcast interviews. Please contact the Press Officer noted above if you would like to make a booking.