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Worries are building that people may be cutting back on pension contributions due to the cost of living crisis and employers are being urged to keep up their contributions in the meantime to avoid further problems later down the line.
A story caught my eye earlier this week about pensions. It reported on new research which shows one in 10 firms that are members of the CBI say they will continue to pay in to employees’ pensions even if their workers stop saving themselves. Frances O’Grady from the TUC was cited as saying that all companies should follow suit.
The news came amid concerns that workers may be cutting back on their pensions contributions due to the cost of living crisis or opting out of workplace schemes, focusing on the immediate cash problems rather than on the long term outlook. Some 10.4% of workers starting a new job in August are reported to have chosen not to join their workplace pension scheme, up from 7.6% in January 2020. Yet pensions experts warn that this could lead to a lot of problems later down the line, particularly for women who are more likely to have had career breaks for care reasons at some point in their lives and to work part time. All of this contributes to the gender pension gap – the cumulative impact of all the lifetime issues that affect women’s earnings, which is much higher than the gender pay gap and widens as women get older.
Auto-enrollment has made a huge impact in reducing the gender pension gap over the last years and it makes it more difficult for people not to pay their pension as they have to consciously opt out. The TUC says that, ultimately, pay needs to rise to ensure people have enough to cover basic living costs and save for their pension.
If not, the impact will be that increasing numbers won’t be able to afford to retire. A recent My Pension Expert poll, for instance, found that 37% of UK workers aged 40 and above feel the cost-of-living crisis has made retirement impossible for the foreseeable future.
Andrew Megson from My Pension Expert says: “Making sudden reactive decisions in response to sudden economic volatility could be problematic as it could leave people worse off in the future.” He recommends that people review their existing savings and seek help from an adviser to limit potential risk to their future finances and ensure they receive the various benefits from employer contributions to pension tax relief.
Cecilia Floren, a single parent of two daughters, is in her mid-40s and worrying a lot about whether she will be able to retire. She feels employers could do more to help people understand pensions basics, particularly when so many people have money in different places. There is clearly a lot employers can do, but it’s not all on them.
Cecila would also like to see more education about financial planning from an early age, particularly for girls. She says: “If girls had to think about this early on they could save a few pounds early week so that it became a habit and that could build into a nice safety net. They need to understand their choices so they don’t have to think about it later in their lives and wish that they had.”
*Our sister site workingwise.co.uk conducted a survey earlier this year on the gender pension gap and has produced a free toolkit for employers on how to address all the factors that contribute to it.