Millions of auto-enrolled pensions savers will struggle to pay for their pensions in April when the contribution increase rises from one per cent to three per cent, it has been claimed.
A report from researchers F&TRC suggests the auto-enrolment increases will result in some people putting 21 per cent of their disposable income into their pensions, compared with four per cent previously, branded could be "unsustainable for many”.
The group, which based its calculations on the UK average salary, says further action is required if contributions are to be financially sustainable and not lead to increased opt-outs.
Auto-enrolment contributions for pensions were introduced in 2012, and nine million workers have been enrolled into a pension scheme since. However, contributions are set to increase sharply over the next 13 months from one per cent to five per cent.
“Auto-enrolment has been very successful to date, especially in reaching low to middle income earners. However, as employee contributions are set to rise, our research shows that the burden it will place on the disposal income of the average UK employee could be too great for it to succeed without more work being done to help the workforce budget better,” said Ian McKenna, Director at F&TRC.
Robert Reid, of Syndaxi Financial Planning, said this research underlines the impact of even a small change in outgoings can have.
"For many it could be enough to make them consider or worse still actually take the step of opting out.
"We need to engage people in their future by making their present better. That comes from making budgeting the smart thing to do rather than a chore to be avoided.
"Social Media can play a big part but to make this happen we need our sector to think about people and not about shifting products and or investments.”
Scott Gallacher, adviser at Rowley Turton, said he has already seen people commenting about pensions "simply being a scam and a waste of money".
"When the contributions increase more people will opt-out or leave.”
Ricky Chan, adviser at IFS Wealth and Pensions, said that one way to make people save was to rely on behavioural science.
“Inevitably opt out rates will increase as employees will see higher deductions off their pay slips. So some may incorrectly view this as another “tax” lowering their net incomes or just wish to defer thinking about retirement planning," he said.
"I think similar to reasons why anyone would be willing to forego spending money today in favour of saving for tomorrow, they must see what benefits this may bring to them- eg “the promise” of higher standards of living in future - and of course the big carrot is the employer contributions today.
"Behavioural studies suggests that people are generally loss averse, so the benefits should be framed in terms of what they may lose if they opted out."
