Phoenix Group is calling for a new statutory requirement to support long-term defined contribution workplace pension adequacy.
The requirement ensures the government reviews auto-enrolment contribution levels for better retirement outcomes and considers adjustments based on economic conditions.
The report by Phoenix titled ‘Raising the Bar: A Framework for Increasing Auto Enrolment Contributions,’ proposes a framework for policymakers to determine when and how default contribution rates should rise to 12 per cent from the current 8 per cent.
The framework outlines tests for assessing the financial and economic situations that either support or require adjustments in default contribution rates. It was developed in cooperation with several partners, including the ABI, BCC, TUC, and PLSA.
Phoenix Group CEO Andy Curran says: “Automatic enrolment has been a huge policy success, helping many more people to save for their future. However, research from Phoenix Group’s longevity think tank Phoenix Insights found as many as 18 million people in the UK are not confident they are saving enough to meet their financial goals in retirement.
“The single biggest lever we can pull to boost defined contribution pension savings and improve retirement outcomes, is to increase minimum auto-enrolment contributions. At the same time, both UK savers and businesses are facing substantial economic challenges. But as we enter the second decade of auto-enrolment, it’s vital we keep the conversation about increasing contributions alive, looking at how and when this should happen with a solution for the future.
“We want people to have the best opportunity of having financial security later in life. Acting on increasing contribution rates will mean more people reach retirement in a better financial position and are less likely to rely on the state to support their income. This report outlines a practical approach to taking the necessary steps to set people up for a more secure retirement.”
Standard Life managing director for workplace pensions Gail Izat says: “Auto-enrolment has significantly increased the number of people with pension savings, and it’s now imperative that we extend our focus to include savings adequacy. It’s clear that minimum contributions need to rise above 8 per cent to give everyone the chance of a decent standard of living in retirement, however moving at the right time is key to the ongoing success of the scheme.
“A yearly review into pension adequacy, laid out in law, is needed to structure our approach to balancing much-needed policy with the short-term pressures on employers as well as employees. Any move to boost pension provision will involve a trade-off, and it’s worth noting prior large-scale changes like the introduction of the minimum wage and the initial launch of auto-enrolment have passed with little incident and boosted people’s financial and general wellbeing, benefiting employers in the process. At the same time, we’ve experienced a swathe of economic challenges in recent years and decisions need to be taken in full context of wider economic conditions.
“Without action, we face ongoing under-saving issues across the generations as they move closer to retirement. We’re confident that the framework underpinning the call for the Statutory Requirement sets out a clear, pragmatic route for policymakers to propel workers’ towards better later lives, while paying due regard to the needs of employers.”
WPI Economics managing director Laura Osborne says: “To avoid the prospect of a bleak retirement for today’s median earners, it is critical to increase auto enrolment contributions. However, the big question is ‘when?’, given the current cost pressures faced by both households and businesses.
“This framework takes a pragmatic approach, putting in place meaningful safeguards to ensure that increases in pension savings are only triggered as the economy improves. We believe this can underpin a consensus-based approach to ensuring more people enjoy a decent retirement.”
