Robert Reid APFS ACII, managing director of Syndaxi Chartered Financial Planners, has raised concerns about the impending increases in employee contributions to auto enrolment.
Mr Reid, Vice President of the Chartered Insurance Institute, and also a Certified Financial Planner, believes savers could be facing an affordability crisis to meet contributions.
His comments come off the back of new research which indicated workers on national average earnings will be contributing over 20% of their disposable income under Auto-Enrolment by 2019.
In April, the first of the Auto-Enrolment contribution increases for employees will take effect, rising from 1% to 3%. A new report by independent researchers F&TRC suggested the impact of this increase, and the subsequent increase from 3% to 5% in April 2019, will have a severe impact on consumer’s disposable income.
Mr Reid said: “This research underlines the impact of even that small change in outgoings can have and for many it could be enough to make them consider or, worse still, actually take the step of opting out.
“We need to engage people in their future by making their present better, that comes from making budgeting the smart thing to do, rather than a chore to be avoided.
“Social Media can play a big part but to make this happen we need our sector to think about people and not about shifting products or investments.”
Following a gradual staging process since 2012, where the employee contribution level remained at 1%, contributions are set to increase sharply over the next 13 months from 1% to 5%.
F&TRC’s ‘Making Savings Affordable’ report showed this increase will result in the burden of contributions for employees increasing from 4% of disposable income to 21%, a level that “could be unsustainable for many”, the authors said.
The researchers said that further action was required if contributions are to not lead to increased opt-outs.
F&TRC is calling for pension providers and advisers to provide consumers with tools to help them budget more effectively, spend more wisely and save smarter so that the Auto-Enrolment contribution increases remain affordable and workers continue to save.
Ian McKenna, director at F&TRC, said: “What we don’t want to see, after so much good work to date, is employees opting out, making them even less prepared for their future and throwing away the additional 4% they receive in employer contributions and tax relief.
“It is crucial that pensions and tech firms develop and deliver digital tools and services that will help consumers better manage their budgets in order to meet these increasing pension contributions and save for retirement.”