The ABI has urged the Pensions Commission to set out a clear roadmap for gradually increasing automatic enrolment pension contributions from 8 per cent to 12 per cent by the end of the 2030s.
The development follows from the Department of Work and Pensions publishing its own roadmap for pension reforms, which includes key details on the scale test and value for money frameworks.
Given financial pressures facing households, workers and employers, the ABI asserted that a carefully phased approach will be needed to build better retirement outcomes and give UK businesses and savers time to plan and adjust.
The Pension Commission’s interim report found that higher rates of private pension saving are needed to make sure low and middle earners have enough for an adequate retirement in later life.
It has proposed splitting contributions equally among the employee and employer, resulting in a 1 per cent rise for the employee and a 2 per cent rise for the employer from current levels.
The analysis found that this increase would boost a median earner’s eventual pension pot by 50 per cent over the course of their employment.
Yvonne Braun, director of long term savings and Health and Protection Policy at the ABI, says: “Automatic enrolment has been one of the great public policy successes of recent decades, helping millions more people put money aside for later life. But while the current 8 per cent contribution rate was the right place to start, evidence increasingly shows it will not be enough on its own to deliver the retirement incomes many people expect and need.
“The question is no longer whether pension saving needs to increase, but how we get there. The destination is important, but so is the journey. Any increase in contributions must be gradual and predictable, ensuring it remains affordable for both employers and employees.”
The ABI is also advocating for lowering the age when workers become eligible for a workplace pension from 22 to 16. This is because legislation to do this is already in place, and the benefits of starting to save early are established through research into the subject.