Government pension policy needs to prioritise raising auto-enrolment contribution levels if it wants to make a material difference to people’s financial security in retirement.
Speaking at the Corporate Adviser Summit, Royal London’s director of policy and communications, Jamie Jenkins, called for policymakers to set out a timetable to raise both employee and employer contribution levels.
He said: “There is now the opportunity to put in place a long-term strategic plan, setting out the priorities when it comes to pension planning.”
Jenkins said higher savings rates should be at the heart of a longer-term plan. “But this does not seem to be a key part of policy discussion at present,” he observed, despite the plethora of pension initiatives currently underway: from pensions dashboards, to Mansion House reforms, Value for Money regulations, consultations on small pots, decumulation, CDC, advice and guidance, and the forthcoming Pension Review and proposed AE reforms — first mooted in 2017.
He said: “There are always good reasons not to raise contribution levels, such as the recent cost of living crisis.” But he added that without a timetable, it could be many decades before significant improvements are made to retirement adequacy.
Jenkins acknowledged that while there were concerns about how this might impact those on the lowest incomes, the majority of people could and should save more for retirement.
He drew parallels with Australia, where employers now contribute between 11.5 and 12 per cent into DC plans, after contribution rates were raised over a number of years.
Jenkins said that work modelled by Oxford Economics found that a mandatory AE contribution level of 12 per cent — split equally between employer and employee — would have a short-term impact on the economy, but this would prove to be relatively short-lived. The effect of this could be minimised further by other government actions, such as increased DC investment in the UK economy via the Mansion House reforms.
Jenkins added that the new Labour government clearly wants the UK DC sector to invest more in productive finance. This could help deliver better outcomes for members, he said, but it is also an opportunity for the industry to ask something from the government in return. “We would like to see clarity and consistency on what the future looks like in terms of pension planning.”