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Do you know about the UK pension shake-up?

Auto-enrolment is one of the biggest pensions changes in decades, but most employees are still in the dark about how they will be affected.


by Michelle McGagh on Sep 10, 2012 at 00:01

Do you know about the UK pension shake-up?

More than half of UK workers are in the dark about the huge changes to the pension system that will see them automatically enrolled into their employer’s pension scheme from October.

The Workplace Pensions Report 2012 by insurer Scottish Widows shows 52%, or 9.9 million, workers in the UK are unaware of auto-enrolment.

Under the government’s new plans, workers who do not already contribute to a workplace pension will be auto-enrolled into one – workers in larger companies will be auto-enrolled from October, with those in smaller companies will be auto-enrolled over the next five years.

However, it is not a compulsory scheme, and workers will have the opportunity to opt out. Employees will continue to be auto-enrolled every three years and must continue to opt out.

Lynn Graves, head of business development for corporate pensions at Scottish Widows, said it was ‘shocking’ that with just three weeks to go until auto-enrolment starts there was still a gap in awareness.

‘Auto-enrolment is designed for people who traditionally don’t have access to a workplace pensions scheme, such as smaller employers of those with lower incomes, and it is clear that information is still not reaching the audience it is intended to target,’ she said.

Wanting to save more

Although many employees are unaware of the changes that make it easier for them to save, many wish to do so.

Just 11% of workers said they would opt out of the scheme, with 32% of those who would not take part stating that they could not afford to save.

However, those who are willing to save want to save a lot more. The amount that workers want to save has doubled since last year, from £37.50 to £76.95, although a third of people still said this level of saving would not be enough to provide them with an acceptable standard of living in retirement.  

Graves said: ‘It is clear from our research that people are failing to save enough for their future, especially in relation to retirement.

‘While it is a positive sign that people are willing to pay more into their workplace pension, substantial work must still be done to encourage people to save enough for retirement and this is a challenge for government, the pensions industry and employers.’

She added that Britain was ‘slowly waking up to the reality of how we are going to be able to fund our retirement?’, with people realising they will not be able to rely on the state to provide the majority of their income.

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18 comments so far. Why not have your say?

Rob Walker

Sep 10, 2012 at 06:14

The one blunt instrument that the the Life Insurance and Pensions industry ever use is Anxiety and they wield it at every opportunity. For all those who can't afford more pensions contribution this just propagates worry and depression. There are other options than stuffing the pension pots of fat cat fund managers. Move somewhere cheap, live frugally and make the most of everything available to pensioners. A small pension would help but the real cost of a 'Comfortable retirement' is more up to individuals resourcefulness than their meager resources.

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Guy Dobson

Sep 10, 2012 at 06:21

Whilst I am encouraged by people's wish to save more for retirement I still have concerns over the performance of some pension fund products. Markets are trading sideways at the moment and may well do for some time. Beta growth is out the window. Alpha, "wot fund managers are supposed to add and are paid to add" is therefore of paramount importance along with lower pension fund charges. Would suggest that the pension fund industry "kicks the tyres" of all products keeping management fees to below 50 basis points and ensure a compound growth rate of at least 5% above inflation as a de minimis.Let's see what they can really do if tested!

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Tony Peterson

Sep 10, 2012 at 07:32

Every intelligent worker due to be auto-enrolled should, in my considered opinion, opt out from the beginning and re-opt out every three years.

As an alternative which would be much more likely to fund the sort of comfortable retirement that I enjoy, that worker would do much better by using as much as possible of the money saved in a self-select ISA buying individual shares in high yielding blue chips.

Had I used all my allowances in TESSAs, PEPs, and ISAs to the full, ignoring the blandishments of the industry, I would be considerably richer now. I am not complaining. Just stating a fact.

My income from public and private sector pensions are a joke. Dividends make my wife and I rich.

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Sep 10, 2012 at 08:22

Tony - hindsight is such an exact science..........

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Jo Public

Sep 10, 2012 at 08:25

Shake "up"? Sounds more like another shake-down. Like National Insurance. Luckily we'll be out of business by the time it gets to us.

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andrew sutherland

Sep 10, 2012 at 09:08

Maybe i never realised, but this struck me:

" Scottish Widows shows 52%, or 9.9 million, workers in the UK"

Which means to me that this island has approx 20 million workers? so 40 million+ others are being state supported in some way or another? No wonder we are screwed!

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Brian Kneller

Sep 10, 2012 at 09:12

The message that continually comes across is that the DIY pension solution is possibly the best, however we only hear from those with success -- how many failures are there I wonder ?. It is disconcerting that the government still continues to foster the business objectives of the financial sector including channeling pension funds into the institutions that have caused many of our financial woes. You could take a jaundiced view and regard this as a loose arrangement to provide their city chums with a supply of cheap cash for years to come.

I have recently bought an annuity and realised the hard truth of the iniquitous rip off of the financial sector of which I was already aware. I have however have taken full advantage of peps, ISAs Bonds etc and good old cash savings so my position is pretty robust. There are those that would lambast me for not being resourceful enough to make a killing in the casino similar to Tony.

I, like many others I guess, do not have the inclination to engage directly with the stock markets as there are many other things which have occupied me. People should be able to make provision for retirement and gain the full benefits of these savings without the financial parasites plundering the monies in the pension provisions which are not theirs.

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kathleen wood

Sep 10, 2012 at 10:53

Perhaps if we all knew where our money would be invested in advance, for example, safe, reliable and guaranteed to grow over time, mortgage backed securities, we would be more enthusiastic about this little scam ...sorry, venture!

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Sep 10, 2012 at 13:57

The main beneficiary of this will be the government. For those on basic rate tax, pension schemes should be avoided. Reason:- When you start to draw the pension, the government treats the whole lot as taxable income. You can end up, like me, paying tax at 40% when you only got 20% tax "relief". Particularly so when they actually lower the 40% start rate.

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Anonymous 1 needed this 'off the record'

Sep 10, 2012 at 14:08

I suspect that the employed numbers suggested do not account for the self-employed.

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Rose G

Sep 10, 2012 at 15:23

I certainly would give private pension funds & managers a wide berth - their aim is to increase their take home wage, not to increase yours! If you understand this point, you will not be surprised when you find that your pension pot would not fund a pot to piss in, instead it will improve things for the pension fund manager, but not for you - this is why ordinary people with low incomes should not bother to invest in a pension.

I have been making AVC for the last 5 years, and have decided this is not going to do me any good as the pension fund does not increase, and nor do I get any benefit from additional payments, I just get back whatever I paid in, so what was the point of making the extra contributions?

The entire pensions industry is just there to profit governments, & the pension fund managers!

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Sep 10, 2012 at 22:17


Re your AVC. I sympathise with your findings, however you have at least come to this conclusion early enough to do something about it.

I am no pension expert but I expect that you will be able to transfer the AVC part (only) of your pension into a personal pension. In particular I am thinking of a SIPP invested in one or more investment trusts. Probably Sippdeal is the best place to start looking at as it is very low cost. (no management charges during the investment phase). Take your time, choose your own Investment Trust(s). Say one low risk investment trust to start with - but not funds and hey presto you have taken the first steps in becoming your own pension fund manager.

Later in life if the annuity market is being generous then you can convert it into an annuity just like your pension manager would. But if the annuity market is giving poor value at that time (like it is now) then instead you can take regular drawdown payment of similar value while keeping control of your investments. My own experience of doing this has been very positive.

However I agree with an earlier blog in that that you should be paying higher rate tax to make a defined contribution pension worthwhile. An ISA investment account is an attractive alternative for basic rate payers.

Also aim to have a final pension pot of at least £120K before going the sipp route to make it worthwhile after taking your 25% tax free.

Also get a second opinion about your current pension arrangement before making any change. Sorry to bore you if you already know all this.

I also agree with Rob Walker (first blog above) in that at retirement you have pension life style options to make which provide enjoyment as well as allowing money to spread further. In my case I am set up to make my own wine, beer, yogurt at pennies of cost and minutes of time. Add in a patch of land for vegetables and I can live like a king. Austerity - bring it on.

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Rose G

Sep 11, 2012 at 10:10

john_r, thank you for your advise regarding AVCs. I am looking at ISAs & other alternatives; in previous years, I invested in an M&G fund which I gave up; perhaps its time to look at other ways to invest smalls sums to start with, and eventually have something bigger to play around with.

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Sep 11, 2012 at 11:42

Please step back and think about the context using a pension vehicle for saving for your retirement today.

Yes, those of you who have identified correctly that the Government is trying to ensure you save for your old age and therefore reduce your reliance on the State are obviously correct. Is that a bad thing?

The Government has very clearly said (and NO opposition party are arguing) that all the complicated pension benefit structures will be dropped in the coming years and a simple enhanced single old age pension will replace them. That means any private pension income you save for will be on top of your State Pension benefit.

Finally people keep referring to ISAs as an alternative. The whole point is that:

1. Your employer contributes to the pension saving (i.e. for a pension you make 100% on day one - no ISA can do that).

2. ISA do not attract tax relief on the contributions made (so there is another 20% minimum saving or in other words an ISA has to make 20% just to catch up to where the pension saving starts).

3. Finally, yes with an ISA you do have to buy an annuity at what may be poor rates. Guess what, people are living a lot longer what is your REALISTIC alternative.

By the way do the maths and you will find that you will have paid no more than 40% of your pot in yourself. You can take 25% of your pot as a tax free lump sum. This means that at most you will have paid 15% of your total pot from your own income the remaining 60% of the pot is pure profit, contributed by either tax relief or your employer (and that is before any investment growth).

Come on Guys. I do NOT like compulsion, I don't like how we are more or less compelled to take an annuity at retirement but to suggest that saving for retirement using a WORK BASED pension, that your employer pays into, is a bad idea is just being bloody minded.

Just as a thought. Those of you who assert you could, by your own contributions alone and with no employer contribution, better any pension plan option, congratulations. BUT. Do you really think the average UK citizen could manage this complex and very high risk approach?

ROSE G - By the way, you can’t necessarily transfer an AVC to a personal arrangement in isolation. It depends on the AVC arrangement and how it was entered (i.e. whether it was linked to an occupational scheme or a free standing AVC).

Still worth a try though if you want the greater flexibility. Good call John_r.

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Sep 11, 2012 at 11:44

Sorry all. Point 3. should read that with a pension you have to buy an annuity. Not with an ISA.


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Rose G

Sep 11, 2012 at 11:58


The AVC is related to my occupational pension scheme. I originally signed up to make additional contributions, in the belief that as I required a further 3 more years to the total contributions, without reading the paperwork properly.

After a recent review, I found out that the AVC did not attract any additional benefits, and in order to get that extra number of years, I needed to contribute for nearly 8 yrs, to qualify for those extra 3 yrs.

I was advised that in view of the current and future changes with pensions, and in view of the financial crisis many are facing, I could stop paying further AVCs.

I decided to stop contributing to the AVC when I realised that I had misunderstood the original information shared with me ie to add a further 3 yrs to my length of service, I had to pay for nearly 8 yrs. I do not understand all the changes that will come into effect, but by a rough calculation, felt that not getting any further returns on the investment, I would be better off paying into an ISA. The chap who came in to discuss pensions explained that I would only receive pound for pound and i felt this was a bad deal. although I have another 4 yrs left before I can take my occupational pension, saving into an investment fund with fairly low risks might be a way forward.

The aim of making this saving is to try and get a deposit for my son, so he can purchase a property. I am not intending to live full time in the UK, and he could certainly do with the help, as do most young people!

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Paul Eden

Sep 15, 2012 at 09:40

I myself have been convinced that I got nothing back for the years I paid in AVCs towards my pension. I couldn't understand what had happened to it in the context of the early retirement pension I received. There was no transparency and no one explaining precisely how it all fitted together.

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Andy via mobile

Nov 16, 2012 at 17:12

Dek, you also have to take into account when comparing Isa/Pension that there is no tax to pay, ever, on returns from an Isa albeit you invest taxed money to begin with.

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