Auto-enrolment has forced many employees, supported by their employers, to begin saving for their retirement. More than 200,000 employers have fulfilled their duties, but this is only the start, and we are now well into smaller employers with fewer than 30 staff, where the enthusiasm is somewhat less.
There is no doubt it has had an effect on the savings market, with a lot of activity, additional investments and yet more legislation to address perceived loopholes that are being exploited by the industry (the charge cap) or to make pensions more attractive (pension freedoms).
But auto-enrolment is only another version of 'compulsory' saving that we have seen before. The state pension in all its versions, along with being able to make membership of trust-based schemes a condition of employment, have both been successful, while stakeholder pensions were not.
Knowledge is still power. Employees need to understand more about retirement and be taught simple concepts. The government is going to pay about £8,000 a year once a person reaches the ever-rising state pension age. Some find this sufficient, but for many it will not provide for what they regard as the necessities of life.
Having been advising employers and employees on the need for retirement planning since 1978, I have spoken to hundreds individually and communicated with thousands through booklets and announcements.
The only approach that really works is face-to-face, when it is necessary to reduce the complexity of pension legislation to a few simple concepts that are very generic, but experience has shown they are understood and remembered.
The word “pension” is boring and for many it is too far in the future for them to want to give it much thought.
Someone once said that hearing it said resulted in "Mego" (my eyes glaze over). What is not in any doubt is that the state is cutting back on benefits, so individuals need to save more if they want to have a comfortable retirement. Few appreciate how much they need to save, something not helped by the regulations the pensions industry has to adhere to, but you cannot plan unless you understand the concepts of retirement. So what are the most basic concepts?
It is quite simple: when we work we get paid by our employer and when we retire we pay ourselves. So we need to put aside enough to pay ourselves. But for how long?
Many of us who are 40-plus have parents who survived into their 70s. We need to understand that this has changed and on average both men and women will now live well into their 80s. So let us say that we survive 20 years after our individual state pension age, adapting as we go along if there are breakthroughs in medical science that increase our lifespan.
Everyone will have their own view, but mine is half of pre-retirement income. On reaching state pension age you stop paying national insurance and pension contributions, you also save on work expenses such as travel, clothes and food and, hopefully, any mortgage has been paid off. For many these equate to about half of our pre-retirement income, hence this target.
