Following the release of the Government’s ‘Levelling Up the United Kingdom’ White Paper, the PLSA’s submission to the Work and Pensions Select Committee’s Call for Evidence on Saving for Later Life makes three key proposals that would expand the scope of automatic enrolment and increase pension contributions for millions of workers:
• To extend the current AE regime during the mid-2020s to include younger people and pension saving from the first pound of earnings, as the Government has promised following its own review of automatic enrolment in 2017. This needs to go into legislation as soon as possible.
• By the end of the decade, for employer contributions to be levelled up to those of employees so each will pay in 5% of salary. This will result in no higher contributions for employees but employers should be asked to increase contributions from 3% to 5%. It will mean total pension contributions increase from 8% to 10%.
• In the early 2030s, for a further increase of 1% extra for both the employer and employees to bring total automatic enrolment pension contributions to 12%.
The timeframes are designed to lighten the affordability burden on individuals as they face pandemic-driven cost of living increases in the near-term, whilst also addressing the stark reality that most people will not save enough for their retirement at the current contribution rates.
The Government also has a central role to play in setting up pensions dashboards to help people engage with, and understand, their pension saving; maintaining the current regime for pensions tax relief to reward pension saving; and fixing the advice/guidance boundary to give both employers and schemes the confidence to provide more support for savers.
These proposals, and others aimed at improving pension adequacy for savers, particularly under-pensioned groups such as the self-employed, gig economy workers and women, can be read in more detail in the PLSA’s submission to the Work and Pensions Select Committee.
Nigel Peaple, Director of Policy and Advocacy, PLSA said: “Current contribution levels are not likely to give people the level of retirement income they expect. People’s inertia has driven the success of automatic enrolment in helping millions of people to save for their retirement but inertia also means they assume that the statutory minimum is the right level. In many cases this is not the case.
“As the Government seeks to ‘level up’ the economy, narrowing wealth disparities between regions and different demographics, we think now is the right time for the Government to commit to levelling up pensions, gradually, over the next decade, in three affordable steps.
“First, the Government should implement its plans of extending pension savings to the over 18s, and commence pension saving on each pound of savings, from the mid-2020s. Then around the end of the decade, pensions should be “levelled up” so that employers match employee contributions. This would mean 10% of pay goes into pensions but would not require extra contributions by workers. Finally, when affordable, in the early 2030s, contributions should be increased to 12%.
“A Government timetable now, as part of the Levelling Up strategy, for modest increases over the next decade, will ensure pension savers are not overlooked or undervalued.
“Pension adequacy is the PLSA’s main strategic project in 2022 and we will be doing further policy and research work on this, with our member pension schemes, over the course of the year.”
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