Today (Monday) new legislation comes into force that will see more than 5m people savinginto a pension for the first time ever by the end of 2018. NEST, the national not-for-profit pension scheme established under the legislation, has calculated that the majority of these new savers will need to put just over £2 aside each week to get them started – and if their employer pays the entire minimum contribution required by law, nothing at all. Automatic enrolment reforms will affect 11 million workers not currently saving into a workplace pension, of whom 46 per cent have never saved in any type of pension before. While 90 per cent of those affected by the reforms earn less than £40,000, the average wage for people who have not saved into a pension previously is just under £20,000. The new rules will mean that for less than the cost of a pint per week these savers will get nearly £3 from their employer and almost 60p from tax relief put into their pot as well, meaning the money going into their pot will total just under £6 per week, or £25.74 per month. By 2018, if they keep contributing, they will be putting aside on average about £12 per week of their own pay, in return for almost £9 from their employer and nearly £3 in tax relief. Total weekly contributions will come to an average of £23.67, equivalent to £102.95 going into their pot each month. NEST calculated the true cost to consumers to highlight the message that pension saving can start with small, affordable steps and to celebrate the end of its ‘Tomorrow is worth saving for’ competition. The competition, which ran on Facebook, Twitter and Pinterest during June and July, received nearly 200 entries from members of the public who came up with snappy headlines and images to illustrate the things they enjoy doing today, such as going to the cinema or going out with friends, that they’ll still want to do when they retire. Commenting, Tim Jones, Chief Executive of NEST, said: ‘The winning idea from our competition is all about small, affordable pleasures, not world cruises or champagne lifestyles. We want to set realistic expectations while encouraging people to think about why tomorrow is worth saving for. ‘Pension saving can start small, even just £2 a week. Keeping at it and adding more over time means there’ll be that bit more in retirement, which may be the difference between enjoying the little extras and going without. ‘Automatic enrolment is an excellent start. It will mean millions of people who have never had one before get a pension and employer contributions as well.’ The winning idea, submitted by Lucy Richards, a mum of two from St Albans, is being published in national newspapers today to mark the start of automatic enrolment and the role NEST will play in the new pension landscape. About the research: Latest DWP figures show there are 11 million workers eligible for automatic enrolment who are not currently saving into a workplace pension. (‘Workplace pension reform: digest of key analysis’ DWP, July 2012 http://statistics.dwp.gov.uk/asd/asd1/adhoc_analysis/2012/wpr_digest_0712.pdf) 90% of those who will be automatically enrolled earn under £40,000 per year (Annual Survey of Hours and Earnings, 2008-2009) Median earnings among this group are £20,100 (Annual Survey of Hours and Earnings, 2008-2009) Contributions were calculated on the average salary of the group (£20,100) as follows: From 1 October 2012 onwards
Pensionable pay | Employer contributions | Employee contributions | Tax relief | Total contributions | |
Contribution rate | 1.00% | 0.80% | 0.20% | 2.00% | |
Weekly | £295.93 | £2.96 | £2.37 | £0.59 | £5.92 |
Fortnightly | £591.86 | £5.92 | £4.73 | £1.18 | £11.84 |
4 weekly | £1,183.73 | £11.84 | £9.47 | £2.37 | £23.67 |
Monthly | £1,286.83 | £12.87 | £10.29 | £2.57 | £25.74 |
Annual | £15,446.00 | £154.46 | £123.57 | £30.89 | £308.92 |
From 1 October 2018 onwards
Pensionable pay | Employer contributions | Employee contributions | Tax relief | Total contributions | |
Contribution rate | 3.00% | 4.00% | 1.00% | 8.00% | |
Weekly | £295.93 | £8.88 | £11.84 | £2.96 | £23.67 |
Fortnightly | £591.86 | £17.76 | £23.67 | £5.92 | £47.35 |
4 weekly | £1,183.73 | £35.51 | £47.35 | £11.84 | £94.70 |
Monthly | £1,286.83 | £38.61 | £51.47 | £12.87 | £102.95 |
Annual | £15,446.00 | £463.38 | £617.84 | £154.46 | £1,235.68 |
NEST commissioned an independent survey of a representative sample of 1,847 jobholders who fall within this group. Those surveyed were:
- Aged at least 22 and under State Pension age
- Working or ordinarily works in the UK
- Employed in the private or charitable sectors
- Not currently members of a qualifying pension scheme
- Earning more than £7,475 per year from a single job
Of these, 46 per cent had not previously saved into any type of pension scheme before. About the ‘Tomorrow is worth saving for’ competition:
- NEST launched a national campaign called ‘Tomorrow is worth saving for’ in June 2012. Via social media, it asked consumers, ‘what do you do now that you will still want to do when you’re older? Going to the cinema, socialising with friends, going to the football?’ Consumers were invited to enter a competition to come up with advert ideas representing what they think would make ‘tomorrow worth saving for’.
- In total nearly 200 ideas were submitted to the competition. The campaign attracted more than 3,000 interactions with NEST’s social media profiles and was seen by over 35,000 people on Facebook alone.
- The ideas submitted were whittled down to a top ten by NEST employees, and then a shortlist of three was judged by a panel including NEST Chief Executive Tim Jones and Jeff Prestridge, Personal Finance Editor of the Mail on Sunday.
- The winning idea, which was developed with the support of creative agency TBWA Manchester, was published in the Mail on Sunday yesterday (30th September) and will appear in the national edition of the Metro today (1st October).
Results from testing:
- To spark conversation and give people who entered the competition inspiration, NEST developed five ideas of our own for possible adverts, based on in-depth research with people who will benefit from automatic enrolment.
- As well as inviting feedback on these adverts from consumers taking part in the competition, we commissioned Populus to independently test them with a representative sample of the UK population.
- Around half (46 per cent) of respondents who saw the adverts said they made them feel more positive towards automatic enrolment and NEST, with just 6 per cent saying they made them feel more negative.
- A third (32 per cent) said the adverts made them think that they will still want the same lifestyle they have now when they retire and that they should ensure they can maintain their standard of living.
- A fifth (20 per cent) felt encouraged to save for the future.
Research behind the competition:
- Over the past few years NEST has conducted in-depth research with our target audience through quantitative surveys as well qualitative focus groups and in-depth interviews.
- This research suggested that while many people recognise they are not doing enough when it comes to pension saving, they do not respond well to scare tactics or being told they ought to be doing more. Constructive messages about what they can do to put the situation right and what they stand to gain work much better.
- People also struggle to project themselves into old age and to think about the future. The challenge is to bring messages about pension saving into their current working lives.