The UK population is facing a major savings crisis – and it’s not confined to the millennial population. In fact, the so-called ‘generation debt’ demographic – those aged 18-25 – are active savers and putting up to 10% of their earnings aside to plan for their future. 74% of those recently surveyed by one bank claimed to invest regularly, more so than this country’s older generation.
This is an impressive figure and dispels the stereotype of the over-spending millennial. But it’s still not enough for old age. We are living longer – and our money pot needs to accommodate this reality.
Retirees are feeling the pinch, with one in five people in their 50s and 60s unable to set aside enough money after bills and other living expenses are paid. Only 43 per cent are occasional savers according to a recent report carried out by Aviva.
In further research commissioned by Age UK, half the UK’s workforce between 40 to 64 years of age - eight million people - expect to have to work until their late-60s.
Government has taken action to try and reverse this trend. It wants to encourage the population to save more and to legislate businesses to provide pension schemes.
Hence the enactment of statutory staging dates – the period whereby employers must enrol staff into a pension. Staging began in 2012 with larger employers followed by smaller firms. February 1st 2018 marked the last staging date. From now on, all new employers – including SMEs- must comply with automatic pension enrolment on the day their first member of staff starts work.
2% of ‘qualifying earnings’ has to be paid into a scheme for each employee, with at least 1% of this coming from the employer. In April 2018 the contribution rate will rise to 5% of qualifying earnings, with a minimum of 2% from the employer. The following year it will increase to 8% with a minimum of 3% from the employer.
All employers must enrol workers into a workplace pension who:
- are not already in a qualifying pension scheme
- are aged 22 or over
- are under State Pension age
- earn more than £10,000 a year
Most SMEs will probably turn to accountancy firms to manage the administrative side of the auto enrolment.
For SMEs that want to set up the pension themselves, the first step is to visit the workplace pension sector of the Directgov website to learn more about their responsibilities.
The pension regulator also has important information online that SMEs should consult – including the master trust assurance list of schemes that meet government approval. The register includes the National Employment Saving’s Trust (NEST), a not-for-profit, trust-based, defined contribution pension scheme that was created to support automatic enrolment and to ensure UK employers have access to a suitable pension scheme. NEST is easy to use and provides an affordable way for employees to save.
The UK government is right to enact this pension reform – and businesses must comply or face stiff penalties that can hurt their bottom line and impact the wellbeing of employees.
Millions of people are not saving enough for retirement - and as life expectancy increases, savings in pensions are decreasing. Auto enrolment offers a hassle-free way for employees to reverse this worrying trend and for all companies - including SMEs – to play an active role in creating a better financial future for everyone.