The 8% contribution benchmark for auto-enrolment pensions is not enough to deliver a decent retirement income and there is a need to brave up up to pushing it higher, the National Association of Pension Funds chief executive has argued
Speaking at the NAPF's annual conference in Manchester yesterday, Joanne Segars said the 8% contribution rate was a good place to start but it needed to increase by up to 7 more percentage points to ensure life in retirement was adequate.
'There aren't many of us who think that the 8% contribution is enough to deliver a decent pension,' Segars told delegates.
'It's a good start and certainly better than zero, which is the reality for too many today. But now we are going to have to brave up to this issue, as 12% or 15% are more commonly seen as being the right kinds of benchmarks. We need to start managing expectations now - and set the trajectory so that it is a gradual increase.'
However, her comments drew criticism from the CBI, which called them 'deeply misguided'.
Neil Carberry, director of employment and skills at the business lobby, said: 'The current system is a delicate balance designed to deliver the consensus that has made auto-enrolment a success so far. We should always remember that auto-enrolment is one part of a much wider set of responses to the challenge of an ageing society.
'The Pensions Commission chose 8% for a reason. Any suggestion of a change, just a year into the roll-out and before the vast majority of firms are involved at all, is deeply misguided. State mandated minimum contributions must be affordable for all companies and workers.'
Elsewhere in her speech, Segars welcomed the 'green shoots of pension recovery' trigged by auto-enrolment, but she said major issues still existed. In particular, she criticised the focus on the accumulation phase of pensions rather than what to do when it comes time to convert their pension pot into an income.
'People need help and support when it comes to taking their pension. We can't have a situation where we are relying on inertia and defaults when people are saving, only for them to be left all at sea when it comes to taking that income,' she continued.
She cited the NAPF's report, Automatic enrolment: one year on, which highlighted four challenges that pension schemes need to address. These were: scheme complexity; capacity; improvements to governance, and better communication with member.
'Even the large schemes said the [auto-enrolment] rules were too complex and can be a disincentive to do more than the statutory minimum. In this context, pensionable pay and qualifying earnings a big issue. We don't want small schemes to be so overwhelmed that they do things badly - or not at all - with risk of high opt out levels. So we need a re-think on the appropriateness of the current rules and regulations in the light of this experience,' she said.
Yesterday, outgoing NAPF chair Mark Hyde Harrison called for the Financial Conduct Authority and The Pensions Regulator to be merged into a single regulatory body.
Carberry said the CBI did not support this call because TPR does 'unique' work. 'It regulates companies, not financial institutions,' he said.