The cross-party Work and Pensions Committee has launched an inquiry examining how auto-enrolment could be reformed to address issues of pensions adequacy and securing a fair retirement income for low earners.
Despite auto-enrolment in getting more people paying into workplace pensions, the government still estimates that 15 million working-age people are under saving for a sufficient retirement income.
Currently, minimum auto-enrolment contribution levels amount to 8 per cent of earnings split between employee (5 per cent) and employer (3 per cent), and only for people earning over £10,000.
People on low incomes are more likely to be among those under-saving but also the most exposed to any potential increase in contributions, the committee claimed. Pension experts have also been calling for higher contributions to reduce future hardship in retirement, including poverty and consequent poor health outcomes.
Debbie Abrahams, Labour MP and committee chair, says: “Last year we looked at the devastating effect of poverty on pensioners; it isolates, damages health and strips people of dignity. The Pension Commission’s finding that we’re on course for tomorrow’s pensioners to be poorer than today’s was shocking.
“This needs to be addressed, and in doing so, policy-makers should be mindful of the burden any fix would place on low-earners, and employers.”
The UK government currently has no plans to increase minimum contributions but the ongoing Second Pensions Commission is examining ways to secure the pension system’s long-term future. The commission published an interim report in May that suggested an increase in employer and employee contribution rates.
Chris Eastwood, chief executive of Penfold, says: “This inquiry is long overdue. Auto-enrolment has been a success at getting people into pensions, but being enrolled is not the same as saving enough.
“Penfold believes contributions need to rise to 12 per cent, split equally between employer and employee. Our own research shows 43 per cent of UK employees are not confident their pension will fund a comfortable retirement.”
The committee also noted that small businesses with already stretched resources are also exposed to increases in the employer auto-enrolment contributions. The inquiry will consider whether total contributions should be the balance of payments between employer and employee.
