Pension contributions must be increased ‘before it’s too late’ MPs warn
The minimum pension contribution paid through the auto-enrolment scheme is too low and needs to be increased, the Work and Pensions Committee warned.
The rate stands at 8%, but the committee suggested it rise to 12%. However, the MPs said the rise should not be introduced during the current cost-of-living crisis, but insisted that plans for this rise need to be addressed by the government now.
Stephen Timms MP, chair of the Work and Pensions Committee, said: “With many struggling through a cost-of-living crisis, now is not the time to ask people to find extra money for their pensions, but this does not mean that the new team of DWP ministers can sit on their hands and ignore the dark clouds gathering on the horizon for a future generation of pensioners.
“Without action to prepare the ground now, many people will feel the reality of this coming catastrophe in their later years.”
The increase could be achieved by starting with a rise in employer contributions to 5%, level with employees, the group suggested.
It follows calls from the Association of British Insurers (ABI) – the trade association for the long-term savings industry – to increase the rate of contributions from 8% to 12% with savers having the option of choosing a rate of 10%.
The auto-enrolment scheme, which was introduced 10 years ago, has seen the numbers saving for retirement rise significantly, from two million to more than 10.7 million.
It requires all employers to automatically enrol workers into a workplace pension scheme, as long as they are aged between 22 and 64 and earn at least £10,000 in a single job.
‘False sense of security’
But even though millions are now saving for their retirement, the report found the majority of savers (60%) are not saving enough to secure an adequate income when they retire.
Only 39% of households and 37% of individuals are on track for an adequate pension, according to research from the Pensions Policy Institute.
Timms added: “While automatic enrolment has been successful in boosting participation in workplace pension saving, many people will be feeling a false sense of security holding on to the idea that putting away the minimum amount will be enough to enjoy a fulfilling retirement.
“The blunt truth is that many employees need to save more but do not realise it. The government must urgently consider how to boost saving, including examining the case for increasing minimum contributions, before it is too late.”
More help for gig workers and the self-employed
The report revealed gig workers and those who are self-employed are at real risk of being left behind in retirement unless the government steps in to ensure they have access to auto-enrolment or similar schemes.
Just 16% of self-employed workers save into a pension, a fall from 48% in the 1990s, and the committee has suggested the government trial ways for these workers to be automatically enrolled into pension saving.
It also said those aged 40 and over are particularly at risk as they have a limited time to build up a pension pot if they don’t have access to a defined benefit pension, which pays benefits based on salary and length of service.