Phoenix Group is calling for the government to annually assess whether auto-enrolment pension contributions are achieving “decent retirement outcomes”.
In a report titled Raising the bar: A framework for increasing auto-enrolment contributions and published yesterday (November 16), it set out a framework for policymakers to work out how and when default contribution rates could increase to 12 per cent. The current rate has been fixed at eight per cent since 2019.
The report, which is in partnership with WPI Economics named, demonstrates a series of tests it believes could be carried out to ensure future increases are sustainable and affordable.
This includes ‘start tests’ which would include seeing whether household disposable income has risen in one of the last two quarters and whether vacancies are between two and three per cent of total employment.
The second test is a ‘pause factor’ which would see whether increases should be put on hold if disposable income has fallen every quarter for a year and vacancies are above 3.5 per cent or below 1.5 per cent of total employment.
Wider considerations include looking at rising household debt among low income households.
Andy Curran, CEO of Standard Life part of Phoenix Group, said the research from the firm in found as many as 18mn people in the UK are not confident they are saving enough to meet their financial goals in retirement.
“The single biggest lever we can pull to boost defined contribution pension savings, and improve retirement outcomes, is to increase minimum auto-enrolment contributions," he said.
“At the same time, both UK savers and businesses are facing substantial economic challenges. But as we enter the second decade of auto-enrolment, it’s vital we keep the conversation about increasing contributions alive, looking at how and when this should happen with a solution for the future.
“We want people to have the best opportunity of having financial security later in life. Acting on increasing contribution rates will mean more people reach retirement in a better financial position and are less likely to rely on the state to support their income.”
Phoenix suggests this annual analysis should be carried out by the government and involve engagement with employers, unions and personal finance charities.
Gail Izat, managing director for workplace pensions at Standard Life agreed that minimum contributions should rise above 8 per cent for people to "have a decent standard of living in retirement.
She said: “A yearly review into pension adequacy, laid out in law, is needed to structure our approach to balancing much-needed policy with the short-term pressures on employers as well as employees.
“Any move to boost pension provision will involve a trade-off, and it’s worth noting prior large-scale changes like the introduction of the minimum wage and the initial launch of auto-enrolment have passed with little incident and boosted people’s financial and general wellbeing, benefiting employers in the process.”
