Articles - Workplace pensions do not need a crystal ball


The end of the world is nigh….From a workplace pensions perspective, that is what you could be led to believe with some of the commentary doing the rounds. On 6th April minimum auto-enrolment contributions rose from a very low 2% to slightly improved 5%. This has been on the cards for several years, and was even pushed back from October 2017 by the previous Chancellor.

 By Dale Critchley, Policy Manager, Aviva
 
 Despite that, it has caused some uproar that employees and employers will now have to contribute more to their pension.
  
 I don’t want to appear flippant. I know that for some, times are hard and being asked to contribute more to a pension is going to be a big ask for some people and the companies they work for.
  
 But we need to think long-term. Keeping minimum contributions at 2% wouldn’t help many people. A pension pot based on 2% contributions would be very small by the time someone retires. Our figures show an average earner could end up with just £30,000*.
 Raising contributions to 5% and that same person could see a pot of £66,000. Taking it one step further and raising contributions to 8% (as they will from April 2019) and the same average earner could end up with a pot worth £101,000.
  
 The difference increased contributions can make is clear and it’s important we focus on the positives that a workplace pension has to offer, instead just looking at the affordability challenges.
  
 Which brings me to the crystal ball.
 There is a real sense of deja-vu at the moment. Back in 2012 when auto-enrolment was first introduced, there were a lot of predictions being made. We were told opt-outs could be as high as 30%, pension providers would turn their backs on smaller businesses and there wouldn’t be enough advisers to support all the employers that would need to set up a scheme.
  
 None of these things happened, which is why we need to put the crystal ball away now. No one really knows how the British public are going to react – just look at the Brexit vote.
  
 Auto-enrolment has been incredibly successful and there’s little reason to think that won’t continue. It works because people do not need to act. It’s one of the rare times in life when doing nothing pays. Just by staying in their workplace pension scheme, they will pay in more, their employer will pay in more and the government will pay in more through tax relief. There are very few, if any, financial products that offer this type of reward.
  

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