The dangers of pension complacency

Being automatically enrolled into a pension scheme is better than having no pension at all, says Merryn Somerset Webb. But don’t think it will set you up for a comfortable retirement.

I wrote here this week that one of my worries about the new auto-enrolment pension scheme was that it would breed complacency among savers. After all, if the government mandates that you must save a certain amount, why should you even think of saving more?

Under the current terms of the deal, that would be a mistake: save 8% of an average salary throughout your working life into a pension fund and, while you will certainly feel poorer in the short term, you might not end up that much richer in the long term.

A case study in the Mail on Sunday this week didn't set my mind much at rest. Emma Shortt, aged 28, has been automatically enrolled by Travelodge. There is good news in that while she never bothered to enrol in the firm's previous scheme, auto-enrolment has meant she has stayed in the Nest scheme that has now been set up for her.

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But there is bad news too: she thinks that's enough. "I can relax now", she says. "I'm all set."

Would that she were. If she is currently on a salary of £25,000, she saves 8% a year and she doesn't take a tax free lump sum on retirement, she will end up with an annuity worth £220 a month (assuming she wants it to rise with inflation during her retirement).

I fully accept that this is better than nothing, that annuity rates will (hopefully) not be this low in 30 years, and that Shortt's contributions may well rise over time (she says that as she moves upt the company she will "put more in.") But she just isn't "all set".

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.