Pensions should be on savers’ agenda before 2012

Pensions should be on savers’ agenda before 2012

18 October 2010 / by Paul Dicken

Waiting for new legislation that will automatically enrol employees into a pension scheme could mean missing out on over £40,000, according to an investment management firm.

Fidelity research predicts that a 25-year-old saving £100 a month now could end up £41,000 better off than if they waited until 2012 when the National Employment Savings Trust is expected to be introduced, providing auto-enrolment for workplace retirement savings.
If a 25-year-old were to start investing £300 a month from now they could be up to £123,000 better off than if they put off retirement planning until 2012.

Fidelity based the figures on a hypothetical fund investing 40 per cent in equities and 60 per cent in bonds, assuming a 2 per cent inflation rate and 1.5 per cent annual salary growth above inflation.

Although the coalition government is reviewing how auto-enrolment will work, it is expected to commence with an auto-enrolment scheme, originally proposed by the previous government.

Head of UK defined contribution at Fidelity, Julian Webb, said: “The government’s new pension scheme, known as NEST, will see a big shake up for both companies and employees but a real concern is the prospect of people sitting back until they are compelled to save – especially when many may be tightening their belts because of the uncertain economic outlook.”

Webb said starting early not only meant building up a bigger savings pot for retirement but also helped investments recover from falls in interest rates and stock markets.

Urging anyone with access to a company pension scheme to consider joining, Webb highlighted the tax relief available on contributions to pension schemes.

“With the average employer contributing 6.1 per cent of gross salary to a private pension scheme, anyone on the average wage of £25,428 could get, free, an extra £129 a month. If they choose to add in their own money as well then the government will bump this up with tax relief,” he added.

© Fair Investment Company Ltd