The UK government should gradually increase minimum pension contribution rates from 8% to 12% over the next 10 years, the Association of British Insurers (ABI) has recommended.
In a report published today, the trade association argues that the new minimum contributions should be split evenly between employers and employees, with the changes starting to be introduced after 2025.
With the cost-of-living in mind, it recommends that savers have flexibility, including the ability to ‘opt-down’ to pension contributions of 10%. Alternatively, a minimum contribution could be set at 10% with the option to ‘opt-up’ to 12%.
The report highlights the “enormous success” of pensions auto-enrolment – which has brought over 10 million more people into workplace pension schemes – but adds that people still aren’t saving enough for retirement.
It also recommends that the government bring forward commitments it has already made to lower the age threshold for auto-enrolment from 22 to 18, and ensure contributions are made from the first pound earned.
These changes were slated for the mid-2020s and need to be legislated for “as a matter of urgency”, according to the report.
Dr Yvonne Braun, director of policy, long term savings and protection at the ABI, said: “Our report describes the key steps for the next chapter of automatic enrolment and sets out specific recommendations to adapt and evolve the policy.
“We also need to see more people engaging with their pension savings, which is why the industry has come together to launch the Pensions Engagement Season.
“By paying more attention to their pension, people will be able to understand if they’re saving enough and what actions they might need to take if they’re not.”
Auto-enrolment requires that all employers automatically enrol employees who are over the age of 22 and earn at least £10,000 a year into a workplace pension scheme.
However, the government's own research suggests that reducing the auto-enrolment threshold to £5,000 would bring over 800,000 individuals into the scope of auto-enrolment, of which around three-quarters would be women.
To further boost pension saving and help close the gender pension gap, Hymans Robertson recently recommended that the government introduce 'auto-enrolment credits' for career breaks.
This could be done in conjunction with two further measures: substantially reducing the auto-enrolment earnings threshold to include more women on lower/part-time salaries, and removing the offset in qualifying earnings from the first £1.
Hymans Robertson partner, Chris Noon, said: “It’s becoming increasingly clear that one of the primary shortcomings with the UK pensions framework is in the retirement outcomes for women, compared to those enjoyed by men.
“Introducing state auto-enrolment credits, alongside other measures to extend auto-enrolment, would make a significant difference in addressing the inequality. The government simply can’t ignore this inequality which is blatantly unfair to millions of women.”
Image credit: iStock
Author: Chris Seekings