By Dale Critchley, Workplace Policy Manager, Aviva
Recent ONS data shows that across all age groups, but particularly among younger workers, pressure on finances is increasing and there is a worrying lack of financial resilience. Over two-thirds (38%) of UK households report they could not, or do not know if they could, cover an unexpected bill of £850. This rises to over half (56%) of 16-to-29-year-olds.
Worryingly for pension saving, over a third of all households (37%) reported they would not be able to save any money in the coming months and almost one in five (17%) said they did not know if they would be able to save. These figures are consistent across all age groups. It is a sentiment expressed in Aviva’s research too , with younger workers especially likely to feel anxious about their finances.
Across all income groups, two in three (66%) employees feel that managing their finances has become more difficult recently and half (50%) said their current financial position was affecting their health. When it comes to what is important about work, 61% of people said their priority is earning as much as they can, rather than doing a job they love.
The research paints a clear picture of people focusing on the here and now. Although, reassuringly, this does not seem to have resulted in any significant changes in workplace pension opt-out rates or people stopping pension contributions. This may be a demonstration of the strength of inertia, and the effectiveness of default positions that see deductions from pay, but it also demonstrates the important role that employers play in prompting good decision making by default.
There is however a longer-term problem, in that default auto-enrolment pension contribution levels are too low. The DWP found that, although pension saving may be holding up in the face of an increased cost of living, many people are under-saving. Its report shows that over half (51%) of savers will not achieve the Pension and Lifetime Savings Association (PLSA) moderate retirement living standard, and 88% will not achieve the comfortable standard.
One solution might be for employers to sign up to the Living Pension accreditation, which was launched this year by the Living Wage Foundation . This would see pension contributions for new starters rise to 12% of earnings, with at least 7% from the employer.
Another important change will come when the lower qualifying earnings threshold for contributions is abolished, which will see higher contributions by default. This should result in better pensions, particularly for part-time workers.
For employers and employees who cannot raise their contributions, the solution might be for older workers to consider working for longer. It is an option which appeals to a significant number of employees. Aviva’s research found that 55% of people liked the idea of working through retirement, offering freedom in later life while remaining part of the workforce. This might mean employers need to consider how they can best support older workers who want to continue in work. Developments in mid-life MOTs can help older workers assess their finances, wellbeing, and career to help them, and their employers, get the most out of their working lives.
UK consumers, employees and workers are living through challenging times. However, workplaces have the potential to support their people through financial education and default solutions which should ensure good long-term positions.
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