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A million people will choose to miss out on crucial retirement saving in 2019, Government figures predict. This is despite the fact that auto-enrolment will be fully in place by then, at least for all employees that meet the current criteria. We've taken a closer look.
The figure is based on the current percentage of members who have opted out of their workplace pension schemes, which is 10%. This is estimated to increase to 21.7% in 2018 and 27.5% in 2019 when auto-enrolment is expected to be fully rolled out – which equates to about a million Brits.
The main reason for this increased opt-out rate is thought to be the increases in contribution levels that are due to take place in 2018 and 2019. As an example, someone who is currently paying in £18 per month to their pension will be spending £92 come 2019. That's quite a hike, and something some people feel they can't set aside each month. However, when looking at pension saving, can you really afford not to?
Indeed, research from Hargreaves Lansdown shows that someone who opts out of their workplace pension between the ages of 22 and 25 could see their pension pot reduced by £20,000 by the time they reach retirement. That could cover a whole year of your post-work life!
That said, Nathan Long, senior pension analyst at Hargreaves Lansdown, calls for caution when looking at the Government's figures, as "their models include assumptions formulated eight years ago. It is important these models reflect the DWPs current expectations, if not they should be mothballed. Out of date assumptions undermine any work in which they have been used."
Still, if you take the estimates as they are, and include those that aren't currently eligible for auto-enrolment, such as those who are self-employed or make less than the cut-off salary, that means 13 million people altogether will be outside of pension saving in 2019.
If you're one of the people thinking of opting out, think again. One of the main benefits of having a workplace pension is that while your contribution increases, so does that of your employer. So, in 2019, your employer will pay a minimum of 3% towards your pension. Not only that, but the Government ensures there is tax relief on these pension savings, and will add 1% by 2019.
The only other way you would be able to get even close to such a guaranteed additional contribution to your savings is by taking out a lifetime ISA, which comes with a Government bonus of 25%, up to a certain amount.
If you're self-employed or otherwise ineligible for a workplace pension, and therefore don't have the opportunity to get employer-paid pension savings, why not take a look at our retirement guides to get a better idea of your options. Currently, only one in ten self-employed workers save for retirement, which could see them in trouble in later life if they don't have other savings or investments set aside.
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