Nest’s target market is only willing to pay 2.5 per cent of salary into a pension, according to research from Scottish Widows.
The figure, contained in Widows’ seventh annual UK pension report, equates to just £31.70 a month and falls well short of the 4 per cent minimum that employees will need to contribute once the Government’s automatic enrolment reforms have been phased in.
From 2016, employees will need to contribute 4 per cent of income, with a further 1 per cent through tax relief. Employers will pay 3 per cent.
The report suggests that opt-out rates will be relatively low at just 13 per cent but Widows head of pensions market development Ian Naismith concedes this figure could rise when the phasing-in period ends.
He says: “This needs to be addressed. People are fairly sympathetic to being auto-enrolled but the question is whether people will opt out when they are having to pay in more than they are willing to pay.”
Widows defined Nest’s target market as employees with inc-ome ranging from £10,000 to £30,000 working for employers with fewer than 25 staff. A total of 340 of the 5,200 people surveyed for the report fell into this category.
The research reveals that 45 per cent of these people think they will remain enrolled in Nest while 18 per cent are undecided. Twenty-four per cent already have a pension which they expect to maintain.
Hargreaves Lansdown pensions analyst Laith Khalaf says: “The phasing-in of contributions should help because people will become used to the money coming out of their salary but 4 per cent is only a starting point. If people are uncomfortable paying that, they need to step back and consider what that will pay for in retirement.
“The 8 per cent total minimum that will be saved under auto-enrolment is better than nothing but in reality you need to be saving around 15 per cent of salary.”
Widows also urges the Government to communicate the total state pension that people will get under reform proposals as an annual figure of £7,300 rather than £140 a week.
It says: “£140 a week sounds a substantial amount because people can naturally compare it to their weekly food bill. Expressing it as £7,300 a year would emphasise much better how little it is for most compared with current earnings.”