Employers should offer financial education in the workplace to encourage employees to save more for their retirement, according to Chase de Vere.
More than 10 million people currently save into a workplace pension following the introduction of auto-enrolment, but many employees only pay the minimum amount believing it will be enough to secure a comfortable retirement.
Of the current 8% contribution rate, employers must pay a minimum of 3%, meaning employees are typically paying 5% of their qualifying earnings. However, Chase de Vere has warned that this figure is too low to secure the type of lifestyle they are likely to want in retirement and employers must take greater responsibility for helping their employees to achieve this.
If employees fall short of their retirement targets, it may cause financial worry and stress which in turn can lead to lower productivity and absenteeism, the financial adviser warned.
According to its calculation, an employee earning £30,000 per annum and saving 8% into their pension could build a pension fund of £127,233 after 30 years. If total contributions were increased to 10% the final fund could rise to £159,041, while 12% would equate to £190,849. If employees were to almost double their contribution to 15% it could create a pension worth £238,561.
James Brown, corporate adviser, Chase de Vere, said: “We find that many employees are only paying the minimum auto enrolment amounts in to their pensions and we are concerned that they have a false sense of security, thinking it will be enough to provide them with a comfortable standard of living in retirement.
“If employees fall short of their retirement targets, this is bad news for them and bad news for their employers and this is why we believe that employers need to be doing more. A high proportion of personal stress is caused by financial worries and this can lead to poor productivity and absenteeism. Employers could face further issues with succession planning and motivation if their employees can’t retire when they want and are forced to continue working.”
Chase de Vere believes employers should offer financial education to their workforce, helping employees understand how their company pension scheme works, what benefits it is likely to provide and how they can get more out of it. This should include the benefits of saving more each month and looking at making extra contributions from annual bonuses or pay rises.
Brown added: “Auto-enrolment has the potential to be a real game changer in helping people with their retirement plans. Employers have a key role to play in making it successful and if they don’t step forwards this could be bad news for them and their employees.”
