Millions of workers have been cautioned that they could face poverty in their later years without increasing their pension contributions. This warning comes after Chancellor Rachel Reeves decided to delay a review and reforms of workplace pensions.
As per the current auto-enrolment rules, employees are required to contribute at least 8 percent of qualifying earnings into their workplace pension annually, with a minimum of 3 percent coming from employers’ contributions. A government review was anticipated to raise this figure to approximately 12 percent, necessitating employers to significantly boost their contributions to staff pensions.
However, the Chancellor has postponed the review, arguing that it would impose billions of pounds of additional costs on employers, who have been vocal about the impact of increases in National Insurance and the minimum wage. The consequence of delaying the review is that workers risk having a relatively low private pension income in old age unless they choose to increase their pension contributions, potentially making it challenging to maintain a decent standard of living.
Pensions Minister Emma Reynolds had pledged to initiate a review examining the adequacy of retirement savings before the year’s end, but this has now been indefinitely postponed. Earlier this year, Phoenix Group, the UK’s largest retirement savings business, estimated that raising the minimum auto-enrolment level to 12 percent would result in an additional £10bn in annual pension contributions, shared between employees and employers.
Annual pension contributions, shared between employees and employers, are under scrutiny. The Financial Times revealed that the Department of Work and Pensions (DWP) will not launch the second phase of its pensions review this year, with sources indicating the Chancellor has blocked the move.
A government source stated: “Rachel is very aware of the fact that business is facing more tax and she is serious about ensuring that new burdens are not placed on business.”
Sir Steve Webb, former pensions minister and LCP consultant, expressed disappointment, calling the delay “deeply depressing” and warning of “yet more wasted years”. He said: “The Budget was the death knell for the prospect of any serious progress on pensions adequacy.”
The government’s pensions review, announced in July, aimed to “consider further steps to improve pension outcomes and increase investment in UK markets, including assessing retirement adequacy”. However, pension experts are concerned that continued delays may compromise the retirement prospects of millions of savers.
Research by the Institute for Fiscal Studies found that 30-40% of savers in defined contribution schemes are on track for retirement incomes below the minimum standard set by the Pensions and Lifetime Savings Association (PLSA). Zoe Alexander, PLSA director of policy and advocacy, urged action, saying: “It feels to us that there’s not a moment to lose in terms of having this debate.”
The PLSA has urged the government to gradually raise minimum auto-enrolment contributions to about 12 percent of an individual’s salary. Phoenix also warned that a 15-year delay in implementing this increase could result in a typical 18-year-old losing roughly £35,000 in retirement savings.
Despite no new date being set for its launch, the government maintains that the review of pension contributions has not been sidelined. A DWP spokesperson stated: “We are determined to ensure that tomorrow’s pensioners are supported, which is why the government announced the landmark two-stage pensions review days after coming into office. Government will set out more details on the second phase in due course.”