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Increase AE contributions to 12.5 pc says Aviva

by John Greenwood
November 15, 2016
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Auto- enrolment pension contributions should rise to 12.5 per cent and tax relief should be replaced with a two-for-one ‘savers bonus, says Aviva.

Publishing its own auto-enrolment ‘pre-review’ report, ahead of the Government’s own review of auto-enrolment next year, Aviva says the eligibility threshold should be raised to £10,400 and the lower band earnings threshold reduced to £5,200, so people can understand that qualification is based on earnings of £200 a week and contributions relate to earnings over £100 a week.

Contributions should be frozen for four years after they reach 8 per cent in 2019, before increasing to 12.5 per cent between 2023 and 2028, with employer and employee contributions rising to 5 per cent each.

Aviva UK and Ireland Life CEO Andy Briggs says: “By increasing the minimum auto-enrolment contributions, we can improve the retirement prospects of ordinary people. AE has already proved hugely successful, but there is no time for complacency as we still face the challenge of people not saving enough for their retirement. So we need to build on the success we’ve had so far.

“I know there will be challenges to increasing contributions, both for businesses and employees, but I believe the benefits would be significant. Increasing minimum pension contributions and introducing a simpler and fairer tax system for pensions would be an effective way of giving more people the chance of a decent retirement.”

Aviva’s 10 auto-enrolment review proposals

  1. Phase towards 12.5% contributions by 2028
  2. Adopt a flat rate of tax relief – save 2 get 1 free – and rename as a ‘savers’ bonus’
  3. Bring multiple job-holders into scope by combining their salaries to take them over the qualifying earning threshold
  4. Explore options to extend AE to the self-employed
  5. Remove the upper enrolment ceiling of the state pension age to encourage a longerworking life
  6. Officially encourage consolidation of small pension pots of £10,000 or less
  7. Permit “without consent” transfers of contract-based workplace pensions, so long as savers are no worse off
  8. Increase the eligibility threshold to £10,400 and lower the contribution threshold to £5,200 so that individuals can easily understand when they will be enrolled (once they earn more than £200 per week) and how much they will pay (contributions due on earnings over £100 per week
  9. Adopt three rules of thumb – A 40 year rule: Aim to begin saving at least 40 years before your target retirement date; the 5% rule: Aim to save at least 12.5% of your monthly salary towards your retirement; 10 times rule: Aim to have saved at least 10-times your annual salary by the time youreach retirement age
  10. Encourage the digitisation of pensions through government policy and regulation and a minimum level of digital functionality

 

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