As people with a decent grasp of pensions, you and I are in a privileged position. We understand the importance of putting something away for retirement but the vast majority of people just do not realise how tough it will be if they do not.
We have identified 25 May as State Pension Survival Day. By that date, someone on the average UK salary (£26,676) has already earned the equivalent of a full year of state pension payments (£8,546.20). This should make people stop and think: could they survive for the rest of the year on what they have earned up until this point?
I think we know the answer to that. Quite clearly, the state pension does not give anyone a huge amount to live on in retirement.
The worrying thing is that, according to our research, almost one in five people believe that the state pension is going to be their main source of income. That is an awful lot of people putting an awful lot of faith in it still being around in its current form when they come to retire.
But the other four in five may be in for a shock, too. Government data reports the state pension is the main source of income among all pensioner groups – young, old, single and couples – except recently retired couples. For this one group, the occupational pension provides 31 per cent of income in retirement, on average, compared with 30 per cent from the state pension.
The worrying thing is that almost one in five people believe that the state pension is going to be their main source of income
Auto-enrolment is, of course, the glimmer of hope here. More than nine million people have now been introduced to workplace pension saving thanks to it, helping in some way to close that pension gap and top up what the state will provide.
Early signs are that auto-enrolment overcame its first major hurdle in the form of contribution increases back in April. Analysis is still coming in, but so far we have not seen the mass opt-outs that some were predicting.
But auto-enrolment only covers those who are employed. The self-employed do not get the same kind of nudge into a pension scheme or the incentive of an employer contribution.
This is having an impact. Recent figures from the Department for Work and Pensions suggest that only one in seven self-employed people saved into a pension in 2016. So this is a group that will very likely end up heavily reliant on the state pension when they come to retire.
Helping the self-employed
Last year we wrote a report with Royal London’s director of policy Steve Webb on helping the self-employed in this area. We suggested a system that would use the annual self-assessment process to default the self-employed into pension saving.
As part of completing an annual tax return, self-employed people could nominate a pension provider or scheme to receive any contributions and would have a sum automatically added to their total tax bill, perhaps equal to 4 per cent of their taxable profits.
We figured the fact that the contribution would go up and down in line with the ups and downs of the business would provide a flexibility that would be welcomed by many self-employed people.
I was really pleased to see pensions minister Guy Opperman recently backing the idea of using tax returns to nudge the self-employed towards pension saving. Auto-enrolment has been phenomenally successful in getting the employed to start saving, and those who work for themselves deserve the same opportunity.
For many, the state pension is the bedrock of retirement planning – a base on which to build. But relying on it solely would mean surviving on £164 a week. The need for personal provision cannot be overlooked.
Alistair McQueen is head of savings and retirement at Aviva