As the cost-of-living crisis deepens, new research shows the pressing need to support more people to save for both the short and long term.
New research by Cushon, shows nearly seven in ten (68%) feel anxious about their finances, while around half (48%) feel ‘terrified’ about their financial future.
Half (50%) of employees have no savings or investments outside of their pension or property, and nearly four in ten (37%) have less than £1,000 of readily accessible savings.
The potential repercussions of this situation are stark: two-thirds (66%) of employees report that if they lost their job, they would not survive for longer than three months – while more than half (52%) believe they would not be able to last more than 30 days.
While auto-enrolment has played a significant role in bringing more people into pension schemes, it still doesn’t encompass everyone. Current thresholds require workers to earn at least £10,000 a year and to be at least 22-years old.
What about pensions?
Pensions also do not help people who might need to access money in the shorter term but still need help building a savings pot in the first instance. Again, younger people and those on lower incomes are more likely to feel less resilient with half of younger employees (51%) and six in ten employees (62%) earning under £10,000 a year terrified about their financial future.
Cushon is today calling for reform from the government and industry to ensure everyone is supported to save – both in the short term and long term.
They are calling for the government to reduce the earnings trigger for pensions auto-enrolment – the Government should bring the level down from £10,000 a year to align with the national insurance lower earnings limit, which is currently at £6,396. This will ensure more people, especially women, are automatically enrolled.
It is also recommended to lower the minimum age for auto-enrolment to 18 years old – bringing the age down from 22 to ensure those who enter the workforce at 18 years old can benefit from employer support and tax relief on their pension.
Cushon are also calling for employers to introduce alternative savings schemes on an opt-in basis – to help employees become more financially resilient, employers should offer employees an alternative savings vehicle that they can contribute to directly out of their salary.
Employers should also explore contractually enrolling employees into workplace savings, suggests Cushon. Better still, employers should consider “auto-enrolling” employees into workplace savings. Cushon has partnered with University of Lincoln to show this is possible to do by changing the terms of the employment contract, with opt-out rates just 8 percent.
Employers should also introduce pension redirect. Employers can help employees become more financially resilient by allowing them to redirect some pension contributions into a workplace-saving product, enabling employees to save for shorter-term financial needs and for retirement.
Alternative savings options
Offering alternative savings options for employees can help ensure people are encouraged to build up a savings pot which they can use in the short term – which is useful if people are tempted to stop paying into their pension as they cannot access it if they need it.
Previous Cushon research found that almost half of businesses (45%) with more than 500 employees report that some people are already leaving pension schemes whilst four in ten (40%) also report that some employees are reducing their contributions to survive the cost-of-living crisis.
Although the number of employees currently opting-out of pensions schemes is relatively low – with Cushon research showing just one in ten (11%) are considering doing this – the risk is that people will increasingly be forced to cut pension contributions as increased living costs continue to be felt.
Steve Watson, Head of Policy & Research at Cushon said:
“There’s no denying that pensions auto-enrolment has been successful in getting people to save for retirement since it was first brought in.
“But there are still too many people being left out of pensions especially women who are more likely to work part time and so miss out due to the earnings trigger. Reducing the earnings trigger from £10,000 and lowering the minimum age from 22 to 18 years old are both good starting points.
“In the meantime, the current cost of living crisis is showing that we also need to help employees to become more financially resilient and this is where employers can take the initiative. As we have shown working alongside our friends at the University of Lincoln, offering alternative workplace savings schemes can really help employees build up a financial buffer and also offer an alternative vehicle for those who fall outside of the auto-enrolment criteria. We need to get more people saving for the future – short term and long term.”
Amelia Brand is the Editor for HRreview, and host of the HR in Review podcast series. With a Master’s degree in Legal and Political Theory, her particular interests within HR include employment law, DE&I, and wellbeing within the workplace. Prior to working with HRreview, Amelia was Sub-Editor of a magazine, and Editor of the Environmental Justice Project at University College London, writing and overseeing articles into UCL’s weekly newsletter. Her previous academic work has focused on philosophy, politics and law, with a special focus on how artificial intelligence will feature in the future.
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