Updated 03 September 2020
We take a look at the Auto-enrolment scheme two years in, and do retiree’s really know the true cost of retirement?
Auto-enrolment: the two year itch
Auto-enrolment is a government initiative to kick start a savings culture in Britain and encourage the public to save for their retirement. By 2018, all employers in the UK (who meet certain criteria) will have reached their staging date and will legally have to provide the option of a workplace pension for all eligible employees. Employees will then have to actively choose to opt-out of the scheme, or they will be automatically enrolled.
The creation of the scheme has meant people who may not have considered saving for retirement previously, now will. Since its debut in 2012, auto-enrolment has been cited as a nationwide success story, as people can now worry a little less about life after work.
However, no success story comes without faults as many feel there is still room for improvement. Major finance companies such as Hargreaves Lansdown are calling for auto-enrolment to be reviewed. They argue that although both workers and companies contribute to pension pots, it is simply not enough. Currently minimum contributions stand at 2 per cent, however they suggest if the saving rate was increased to 12 per cent or more, many people would achieve financial security later in life. Head of Pensions research, Tom McPhail says “looking beyond the next election in 2015, we should already be thinking about auto-enrolment 2.0 and ways to fix the gaps left by the current reforms”.
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Retirees underestimating basic living costs
New research by Partnership reveals that soon to be pensioners may fall short in retirement, with many underestimating basic living costs. It has been estimated that to live a comfortable retirement, retirees would need a take home an income of £14,631 per year to cover basic living costs. The average retiree in the UK currently has a yearly income of £13,000 suggesting they may not be able afford luxuries such as social activities and holidays.
Your money reports that people between the ages of 66 to 70 believe they need an annual income of just over £14,600 to cover essential living costs and other expenses, while those aged 40 to 50 believe they need up to £17,000 a year to live a carefree retirement.
The research clearly reveals that consumers close to retirement age may need to cut back on luxuries or do a lot of financial planning financial planning to ensure they are well prepared for retirement. If you are close to retirement, you can have a look at our pre-retirement checklist, which runs you through how to prepare for life after work.
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