Increasing minimum contributions into auto-enrolment pensions to 12 per cent could boost retirement savings by £10bn a year, according to a new report from Phoenix Group and WPI Economics.
The report is urging action on this issue, saying the government has been slow to introduced recommendations that AE minimums be raised. Its modelling shows that for a typical 18-year old, raising the minimum AE contribution level from 8 per cent to 12 per cent could lead to almost an extra £96,000 in their pension pot (in today’s money) by state pension age — equivalent to an additional £64 a week.
However the report – Falling Behind the Curve – says that delaying this increase by five years reduces the total potential savings by almost £10,000. It adds that a 10 year delay reduces the savings by around £22,000 and a 15 year delays reduces this further, by £35,000,
Phoenix also points out that pension funds are institutional investors with the potential to drive capital into investment opportunities that support the UK economy and net zero targets. If pension funds abide by the Mansion House Compactt, which sees 5 per cent of funds invested in private markets, a five year delay could cost around £2.5bn of investment into unlisted equities it says.
Standard Life CEO Andy Curran says: “Millions of UK adults are not saving enough for their future retirement income so it is crucial we have a plan to support greater pension saving throughout people’s working life. Increasing minimum AE contributions is fundamental to addressing this challenge particularly as many people are unengaged with their pension.
“Alongside the benefits for future retirement incomes there is a wider economic benefit that pension capital can play in driving investment to sustainable and productive assets.”
Standard LIfe managing director for workplace pensions Gail Izat adds: “More needs to be done to help people secure a decent standard of living in retirement. The single biggest lever government can pull to achieve this goal is raising minimum contributions at a time’s that right for savers and employers. Long-term savings adequacy underpins the financial wellbeing and security of individual and could help contribute to the success of the wider economy, while employers also have a lot of gain from a financially stable workforce and the potential additional investment into the UK.
“Without action we risk exacerbating under-saving for people of working age as they move closer to retirement as well as depriving the economy of a highly significant line of finance. Raising contributions as soon as possible as benefits all.”
