Workers and employers should jointly agree to implement pension contribution automatic escalation triggers to ensure undersaving is properly tackled, a report from Aegon has urged.
The 2016 Retirement Readiness Survey said increases could be made automatically at pre-determined times and on certain conditions such as pay raises, or upon attaining a certain age.
Savings increases could also be tied to the ending of, or decrease in, significant financial obligations, such as student loan debt, a mortgage or dependent care obligations. These triggers would be agreed on by employers and workers, it said.
The analysis follows government figures showing despite the success of auto-enrolling millions of people into workplace defined contribution (DC) pensions, the level of contributions remains low.
Aegon said employer-sponsored retirement savings plans should be portable so workers could continue to save for retirement at the same or higher rate if they changed employer.
The survey showed the UK and America had made the greatest progress in retirement readiness since 2012. The insurer attributed this to widespread access to personal pension and retirement products giving people greater control over their retirement savings.
The survey covered more than 15 countries and 16,000 employed and retired respondents from around the world. It showed providing workers with access to workplace retirement plans played an important role in facilitating savings and achieving retirement readiness.
The Aegon Retirement Readiness Index (ARRI), which indicates the progress made by countries, had slightly improved since 2012. Here, the UK’s ARRI had increased from 5.3% in 2012 to 6.1% in 2016, the second highest improvement after America.
Auto-enrolment success
Designing retirement plans that automatically enrol workers into a workplace schemes is key to this, the report found. In particular, automatically increasing annual contributions over time could make a big difference in translating good intentions into actual saving.
The introduction of automatic enrolment in the UK has pulled an additional five million people into the retirement savings market. The survey found workers in countries with strong DC retirement plan markets were more likely to feel better prepared.
The survey warned there was a real danger that retirement age expectations are moving too slowly globally given the corresponding increase in life expectancy to the mid-80s, however.
Aegon said: “The world is ready for its retirement wake-up call. Improvements in planning and saving have been offset by decreases in feelings of personal responsibility related to attaining sufficient income in retirement.
“As individuals consider their preparedness for retirement through their health lens, actions to keep healthy and active can increase their confidence in their retirement security and their ability to work longer.
“Employers should be encouraged to promote greater vitality through wellness programmes in the workplace and governments and employers should consider incentives for healthy and active lifestyles.”
The post Employers and workers should agree auto-escalation triggers, report urges appeared first on Retirement Planner.