Study reveals importance of workplace savings

Workplace savings will be key to providing retirement income in the UK, following the introduction of pension auto-enrolment.

The country is a world leader in workplace savings - well ahead of other nations such as Spain, where those retiring anticipate a much bigger reliance on state benefits.

This emerged in a global study from Aegon looking into the retirement outlook.

The financial services company said that, while generous defined-benefit schemes have declined, the start of auto-enrolment in 2012 means Britons now expect 32% of retirement income to come from their workplace savings.

The survey also showed that a further 42% of retirement income in the UK was expected to come from the government, with the remaining 26% from their own savings and investments.

The only country to place greater reliance on workplace savings to fund retirement was the Netherlands, with workers there expecting 38% of their total pension income to come from employer schemes.

Globally, people expect workplace plans to fund 24% of their retirement income.

Workplace savings are least favoured in Spain, with just 11% of retirement income expected to come from employee saving plans.

Spain has the greatest reliance on the state, with an expectation that nearly two-thirds of overall income in retirement would be provided by government benefits.

Globally, the survey found that people expect government benefits to fund nearly half  of their retirement income.

In six of the 15 countries surveyed, people expect half or more of their retirement income to be funded by government benefits: Spain (65%), Germany (55%), Hungary (55%), Poland (54%), Turkey (53%) and Japan (50%).

Young people in the UK aged 18 to 24 anticipate that a much lower portion of their retirement income will come from government benefits (35%) compared to those of pensionable age today (50%).

Despite recent announcements regarding future increases in UK state pension age, young people still expect to retire at a median age of 65  which places greater reliance on adequate private provision.

Steven Cameron, Aegon UK's pensions director, said: "Retirement has long been characterised as a three-pillar model with government benefits, employer pensions and personal savings all supporting individuals when they stop working and no longer have earnings from employment.

"There are significant global differences in the extent to which people expect their retirement income to come from each of these pillars, depending on the retirement system in the country where they live.

"The research shows how each country is reacting to the crisis of an ageing population in different ways.

"The UK's solution to focus on workplace savings makes it world leading, whereas its decision to increase state pension age is likely to mean expectations from the state pillar remain below the international average.

"But those countries which place significant reliance on often-unfunded government benefits, despite widespread concerns about their sustainability as life expectancy rises, could face issues as future generations approach retirement.

"While UK employees benefit from the workplace pension focus, the ever-increasing numbers of self-employed don't. This highlights the need to focus on how to improve pension provision for this significant element of the working population."

How we can help

Auto-enrolment affects all employers in the UK.