The Chartered Institute of Payroll Professionals Research paper – saving for retirement

Executive summary

With one of the biggest changes in pension legislation the UK has ever faced coming into place over the next three and a half years, and to mark the start of National Payroll Week the CIPP has conducted research into the current state of the pensions industry amongst consumers.

The results showed that if current trends continue that the UK is heading for a new pensions crisis as 49 per cent of the population admit to not having any form of pension and less than one in four (17 per cent) calculating what they need to pay and making the right provisions.

Women were slightly worse than men in the survey with just over 50 per cent (51%) admitting they didn’t have a pension. Most people were also completely relying on their employer to provide their pension provision.

Specifically for the new work based pension reforms, almost half again didn’t know or didn’t understand anything about the changes that are coming in. Furthermore, only half of those that did know about the changes knew how much of a contribution they would be, or are already, making. And three per cent have said they would be opting out of the scheme.

With the majority of respondents expecting an annual pension income of between £20,001 and £35,000 this would mean they would need to start putting aside at least 12% of their salary each year. Something that most won’t be able to do with 18 per cent in their twenties saying they are too young to even think about a pension.

Lindsay Melvin, CEO of the CIPP has commented on the findings: “With pensions at the forefront of the government agenda due to the new work based pension regulations coming into force these findings are extremely worrying.

“The extreme lack of awareness surrounding the new system, coupled with the fact that such a significant amount of people don’t have any form of pension what so ever, private or work, will have a huge ripple effect later down the line when many start to reach pension age. Some people may even find that they can never fully retire if they carry on without giving their pension provision serious consideration.”

However it’s not all bad news with 41 per cent saying they would like the opportunity to save not only for their pension but also for a rainy day through their payroll. This is something many employers can offer through their local credit unions, and the CIPP is actively encouraging and supporting through activities such as National Payroll Week.”

Background information

Automatic enrolment started to come into place in 2012 for some of the UK’s largest employers but for the majority, the work based pension reforms will begin over the next 18 months.

For employers, the CIPP has been working hard to understand the pressures they face with regards to the staging process. Friends of automatic enrolment has been a key part of this. Set up in response to widespread market anxiety, particularly around “capacity crunch” issues, the CIPP launched the friends of automatic enrolment on 16 January 2014. It is the first, and only organisation, in the country that is both a pension automatic enrolment discussion forum and a mechanism for employers to find solutions.

The friends of automatic enrolment is the CIPP’s clarion call to all the payroll, pensions, software and advisory organisations; plus all the IFA’s and the EBC’s; plus all the employer groups and professional associations; to work better together so that employers have a better chance of handling their employer duties compliantly.

Its central aim is to be “a capacity crunch task force” and is open to any organisation that wants to help prevent the failure of automatic enrolment, including employers that wish to find support and guidance on how to overcome the AE challenges they face.

However, during National Payroll Week the CIPP has taken the opportunity to look at how the employees are reacting to the changes and how well they understand them.

Whilst the research has shown significant areas of concern that the government needs to address, there is also much employers can do to support their employees; and this is what the CIPP is encouraging through National Payroll Week, and ongoing activities.

First of all, and most importantly, with regards to education. Too many employees were unaware of the reforms and contributions, something that can easily be rectified with additional forms of communication through workshops, one-to-ones and the employees handbook.

Secondly, through offering and encouraging saving through payroll. There is more the payroll industry can do to encourage saving through payroll. This is an opportunity for payroll departments across the UK to help their employer with their Corporate Social Responsibility, recruitment and retention, absence rates and of course to offer facilities to their employees. One way of saving is via a credit union.

Research

The CIPP received 2,000 responses to an electronic omnibus survey it conducted through a third party. This is a significant number and credible sample size, conducted across the United Kingdom at the end of July 2014.

We split the results and analysed them by age, gender and region. The parameters for age and region were: 16-21, 22-30, 31-40, 41-50, 51-60, 61-65, North East, Scotland, North West, West Midlands, Wales, Yorkshire, East Midlands, East of England, London, South East, South West and Northern Ireland.

The average age of the respondents was 38 (men 36 vs women 39), 63 per cent of the respondents were female and 38 per cent male. The majority were in full-time work (34 per cent), followed by students (20 per cent), then part-time and unemployed respondents were both 17 per cent, 6 per cent self-employed and 6 per cent were retired.

Their average income worked out at £16,355.30 (men £19,508.70 vs women £14,423.80). The highest earning age bracket were the 31-40 year olds with an average of £23,134 and the lowest were expectedly the 16-21 year olds with an average of £2,978.20.

Q1. Do you currently have a pension scheme that you pay into?

The statistics showed:

• 49 per cent: No I don’t have any kind of pension scheme
• 32 per cent: Yes, my work offers a pension scheme
• 8 per cent: Yes I have my own private pension scheme
• 6 per cent: Yes, I have both a work and a private pension scheme
• 5 per cent: I have no idea

More women (51 per cent) than men (46 per cent) revealed that they didn’t have a pension scheme and across the age brackets the worrying trend continued with the following figures showing the numbers that didn’t have any kind of pension scheme:

• 16-21 year olds: 83 per cent
• 22-30 year olds: 41 per cent
• 31-40 year olds: 37 per cent
• 41-50 year olds: 35 per cent
• 51-60 year olds: 41 per cent
• 61-65 year olds: 48 per cent

The figures for the number of people not having any pension scheme were highest in the East Midlands (60 per cent) and lowest in Yorkshire (45 per cent).

Q2. Are you aware of the changes that are being made to pensions in the UK, through something called automatic enrolment or workplace pension reforms?

The statistics showed:

• 52 per cent: Yes
• 24 per cent: No
• 24 per cent: I’ve heard about it but I don’t understand what it means

Again men came out slightly better with 54 per cent saying they were aware of the changes compared to 51 per cent of women.

Awareness was lowest, perhaps expectedly with the 16-21 year olds (43 per cent) but grew with age as the highest awareness came from 61-65 year olds (70 per cent).

Surprisingly though London had one of the lowest awareness ratings at 47 per cent and Yorkshire and the East of England had heard and understood the message clearest (both 59 per cent).

Q3. Automatic enrolment or a workplace pension means that by law your employer will put in a percentage of your pay into a pension scheme every payday and also contribute a percentage to it themselves. Are you aware of how much you will be paying into your pension?

The statistics showed:

• 48 per cent: No I’m not paying into any kind of scheme
• 26 per cent: Yes
• 16 per cent: No it hasn’t been discussed with my yet
• 7 per cent: No I’m paying into it but I’m not sure how much
• 3 per cent: I’ve opted out of the scheme

In a continuing trend men were the most savvy with 31 per cent saying they knew exactly what contribution they were making compared to only 24 per cent of women. Also workers in Yorkshire were again topping the awareness scales with 32 per cent but very worryingly only 13 per cent in Northern Ireland knew what they were paying, well below the national average.

Workers in Scotland, the North West and Wales had the highest numbers opting out of the scheme with an average of 5 per cent. c

Q4. Have you taken any consideration into how much you need to pay into your pension pot to receive an amount you will be able to comfortably like off when you retire?

The statistics showed:

• 35 per cent: No I haven’t given it any thought
• 20 per cent: I’m too young to think about that now
• 20 per cent: Yes I’ve considered it but I haven’t done anything about it
• 17 per cent: Yes and I’ve matched the contributions I need to make
• 7 per cent: No I just assumed that would all be done for me by my employer

The older age brackets were most likely to be paying the correct contributions with the splits as follows:

• 16-21 year olds: 2 per cent
• 22-30 year olds: 13 per cent
• 31-40 year olds: 21 per cent
• 41-50 year olds: 23 per cent
• 51-60 year olds: 24 per cent
• 61-65 year olds: 27 per cent

Workers in London (20 per cent) and the North West (21 per cent) were the highest regions for working towards a comfortable pension and Northern Ireland again came bottom with exactly half admitting to not giving it any thought.

Q5. Being realistic, roughly how much a year do you think you’d like to receive from your pension, during your retirement?

The statistics showed:

• 43 per cent: Less than £20,000
• 38 per cent: £20,001 - £35,000
• 13 per cent: £35,001 - £50,000
• 3 per cent: £50,001 - £75,000
• 2 per cent: £75,001 - £100,000
• 2 per cent: £150,001 plus
• 1 per cent: £100,001 - £150,000

The average was £26,467.10

Women were much happier with a lower annual income, their average was £23,655.20 compared to £31,057.90 stated by men.

Despite being the least interested in paying into any form of pension scheme 16-21 year olds were hoping for the highest average annual income of £36,658.40 and the next generation of retirees (51-60 year olds) expected the least by almost a half at £19,190.10.

Understandably Londoners also topped the list with an average expectation of £34,000.40.

Q6. Do you currently save for a rainy day through your wages? (E.g. contribution through a credit union)

The statistics showed:

• 65 per cent: No
• 28 per cent: Yes
• 7 per cent: Not sure

Workers aged 22-30 showed the highest number saying yes to this question (37 per cent) and 16-21 year olds the least (21 per cent).

Londoners also gave the highest number saying yes (35 per cent) and East of England the least (21 per cent).

Q7. If you don’t currently save for a rainy day through your payroll would you consider doing so if offered by your employer?

The statistics showed:

• 41 per cent: Yes
• 35 per cent: No
• 24 per cent: Not sure

Ten per cent more men wanted the opportunity (47 per cent) and half of all 16-21 year olds, the highest statistic of all the age groups.

What has the CIPP done so far?

The Chartered Institute is the only Chartered body for payroll professionals in the UK and as such, is best placed to lobby employers on how they can increase their employees financial understanding, and in doing so, improve their financial wellbeing . The CIPP can also lobby payroll professionals to introduce schemes such as saving through payroll and credit unions as alternatives to payday loans to its employees.

The CIPP has been involved in both these areas for about the last nine months. The motivation for it is purely altruistic and has been motivated by the evidenced negative effect payday loans (PDL) have on people. Research by the CIPP has shown that an automated system of payroll deductions by a business into a credit union, or other saving plan, is beneficial for a number of reasons which are outlined in the positioning paper attached.

Our objective is to encourage all businesses to offer saving through payroll, and for payroll to take the lead in educating their employees about their pay, pensions and saving for retirement, deductions from pay, and how their organisations reward strategy and benefits package can assist them financially.

With regards to automatic enrolment, the CIPP has created the friends of automatic enrolment which encourages collaborative working on the practical issues facing employers to motivate and educate them to want to start preparing for automatic enrolment more swiftly than they otherwise would, and that is essentially what needs to happen to avoid many thousands of companies failing to implement successfully.

For saving through payroll, the CIPP has spoken with a number of large payroll service providers to ask for their help. Some providers will charge for additional items to be processed via pay and the CIPP is encouraging these providers to not pass on charges for the deduction of savings to a third party provider including credit unions.

The CIPP has also met with the Department for Work and Pensions and a number of credit union trade bodies to discuss how the industries can work together to encourage employers to take up credit union offerings, help the administration process for payroll to be with as little burden as possible and understand some of the issues credit unions face when working with employers.

Next steps

The CIPP will continue to encourage employers to educate their workforce on financial awareness, understanding and the importance of saving for retirement and/or a “rainy day”. During National Payroll Week, organisations across the UK are hosting workshops for their employees to find out more about the support that is available to them and how they can benefit from the reward strategy on offer through their employing organisation.

We shall also continue to educate young people in schools and colleges about their pay, what to expect when they go into employment and the importance of saving for retirement early to counter the “pensions poverty” we may otherwise face.

The CIPP will continue to work with payroll service providers, employers, the Department for Work and Pensions, credit union organisations and credit union trade bodies to provide:

• A fact sheet on what credit unions are

  • Where an employer can find information on credit union organisations
  • The process the employer needs to undertake to introduce a credit union
  • Further information on how credit unions can help
• Work with payroll software providers to look at automation and electronic submissions
• Understand the issues experienced by the payroll industry and the credit unions to find workable solutions for all

To get involved in the work that the CIPP is doing, and find out more, visit the “community” area of www.cipp.org.uk or email info@cipp.org.uk