The planned increases to auto-enrolment contributions in April 2018 and April 2019 could see over half, 52 per cent, of under-30s opting out, Scottish Widows has found.
According to Scottish Widows’ 13th annual Scottish Widows Retirement Report, 48 per cent of those aged 22 to 29 said they were committed to staying enrolled once contributions rise.
The report also found that despite the success of auto-enrolment so far, with 80 per cent of 22-29 year olds paying into a pension, 70 per cent of them are not saving enough.
Scottish Widows highlighted that average contributions are £184 a month including employer contributions, meaning these employees can expect an annual pension of £15,200 including the state pension. This is lower than the desired £23,000 a year for a comfortable retirement.
Furthermore, the report noted that a 30 year old contributing the current minimum of one per cent, matched by their employer, will lead to an income of £9,734 per year in retirement. When minimum contributions rise to eight per cent in 2019, this age group will still achieve a lower-than-desired retirement income of £14,047, almost £9,000 below expectations.
Scottish Widows noted that 53 per cent of those in their 20s say they can’t afford to save for the long term because of competing financial priorities, including student loans.
Scottish Widows retirement expert Catherine Stewart, said: “There is no doubt auto- enrolment has been a success in kick-starting the savings habit for millions – but it is not a silver bullet. Auto-enrolment may well be lulling people into a false sense of security that they are putting away enough for a comfortable retirement. For many, that is simply not the case, particularly given retirement is looking more expensive than ever.
“While retirement may feel like a long time away for those in their 20s, it’s really important they start to think about it as soon as possible. Using the right platforms, technology and content to engage young people… if we don’t get this right then it is far more difficult for them to reach their desired savings levels in their 30s and 40s.”