Average pension contributions by employers and employees have flat-lined since 2010, increasing the likelihood of inadequate retirement incomes in the years ahead, the Association of Consulting Actuaries today warned.

According to the ACA's Smaller firms' pensions survey, the average combined pension contribution made by workers and their employers into a defined benefit contribution pension scheme remained equivalent to 9% of earnings for trust-based schemes. For contract-based plans, it remained at just over 7.5%.
Among the 344 employers with 250 or fewer employees there was considerable support for financial incentives to increase both employer and employee contributions. Over three-quarters (78%) of respondents said reducing employers' National Insurance contributions was the most important way to make workers save more, while 67% said doing so for workers was key to increasing their contributions.
Firms also highlighted reducing income tax and clearer disclosure of pension charges as key ways to increase employee contributions, while reductions in 'red tape' and corporation tax were seen as particularly effective ways of reducing employer contributions.
Increasing longevity and generally lower investment returns on pension pots mean the static level of contributions are 'alarming', the ACA said. A 30-year-old worker earning around the current average wage of £26,500 a year would need to save around 16% of their total earnings to retire aged 67 with an income of two-thirds of the amount they were earning before retirement. But, savings of 8% of earnings would give a retirement income of closer to 45%, it noted.
With the ongoing introduction of pensions auto-enrolment ACA chair Andrew Vaughan said the question of how to ensure people save enough to receive a sufficient income in retirement needed to be addressed 'firmly'.
'We hope the higher single-tier state pension reform will go ahead and provide a sustainable "core" income in the years ahead, but on top of this we need to save much more than 8% of "band earnings" for a comfortable retirement with less reliance on state support,' he explained.
'I would like to see the government and opposition pledge to raise minimum pension contributions on band earnings to 10% by 2015 and 12% by 2020, but with pledges to cut national insurance, ear-marking reductions so they support extra private pension savings. If we do not increase these minimum contributions, then government ambitions to hold down state welfare costs are unlikely to materialise - indeed, the pressure will be in the other direction.'