New research from Phoenix Group, the UK’s largest long-term savings and retirement business, finds seven in ten (71%) UK adults agree government should set out a plan to increase the minimum auto-enrolment pension contribution rate if it’s too low for most people to achieve an income they could live off in retirement.
When asked what an ‘adequate’ income in retirement is, the top response from UK adults was an income level where ‘basic needs are covered with some money left over for non-essentials’, and the majority believe it’s government’s responsibility to ensure people achieve this retirement standard. This held true regardless of voting intention and eight in ten UK adults (83%) support a government review to see whether the current pension system is delivering this outcome.
Phoenix Group is calling for a new pension adequacy review to support long-term financial security and is urging all political parties to commit to delivering this in the next Parliament. Phoenix suggests this should cover both private and state pensions, and whether they are working in a complementary way to deliver good retirement outcomes overall.
What contribution is enough?
Under auto-enrolment, employees join a defined contribution pension scheme with a statutory minimum contribution level (from employer and employee combined) of 8%pa. But saving at this level is unlikely to provide enough funds for most people to meet their retirement expectations. Modelling from Phoenix Group’s longevity think tank Phoenix Insights suggests around 14 million people, or half of defined contribution pension savers, are not on track for their expected retirement income. And they’re not just slightly off track, over two thirds (68%) of this group face a savings gap of more than £100k.
Over a quarter (27%) of non-retirees think the minimum auto-enrolment contribution rate is too low. Of this group, half (51%) think the minimum contribution should increase to at least 12% and a fifth (20%) think it should increase to at least 15%.
Phoenix Group, in partnership with WPI Economics, has recently published a framework for increasing minimum auto-enrolment contributions from 8% to 12%, and modelled the costs to individuals and the economy of delaying the increase.
Catherine Foot, Director of Phoenix Insights, Phoenix Group’s longevity think tank, comments: Auto-enrolment has been successful in kick-starting pension saving for millions of people, but the current minimum contribution rate is too low for most savers to achieve an adequate retirement income and may be giving some a false sense of security. We need a government plan to increase contributions and help address the pension saving gap, as part of a wider review of the pension system to ensure it is helping people to save enough and be more financially secure over the long-term.
“Delays and inaction on this could leave generations of future retirees unable to enjoy the lifestyle they hoped for when they retire or struggling financially, with millions more relying on state support later in life.”
Gail Izat, Managing Director for Workplace Pensions at Standard Life, part of Phoenix Group said: “More needs to be done to help people secure a decent standard of living in retirement, and raising minimum contributions is the single most powerful mechanism available. While it’s important that we move when the time’s right for both savers and employers, prolonged inaction risks continued under-saving and the UK sleepwalking into a retirement savings crisis.
“It’s clear that people support action on raising minimum contributions if the current rate isn’t adequate, and we urge the next government to put a review in place.”
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