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Employee Benefits News

Latest News
26 May 2014

Auto-Enrolment Can Boost Retirement Income For Workers Over 50

Automatic enrolment could benefit older workers, with most getting good value on contributions by staying in a workplace pension scheme after being enrolled, according to analysis by the Pensions Policy Institute (PPI).

The report was based on data taken from the English Longitudinal Study of Ageing and evaluated projected rates of return from pension saving under the auto-enrolment scheme. Individual factors like household circumstances were also taken into account to estimate the effects of benefits and tax in retirement. Results showed that 95% of workers aged over 50 will enjoy a higher retirement income under auto-enrolment.

However, auto-enrolment is likely to have a negative impact on the income of a small percentage of the surveyed employees (about 3%), simply because options provided under auto-enrolment may not be suitable for them and may not result in good value for their pension contributions, the PPI said. Most of the people falling in this category are older workers who have already been auto-enrolled but are also entitled to receive guarantee credit due to their partner´s low income.

At present, couples with an income of £226.50 per week are eligible for guarantee credit in retirement. The PPI calculated that if such couples decide not to opt out of a pension scheme after being auto-enrolled, this could hurt their benefit entitlement later. For every £1 added to their pension savings, they are likely to lose just as much in benefit entitlement in later life. This difference could only be overcome if they manage to save enough to get over the means-tested thresholds, the report concluded.

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