The auto-enrolment pension contribution target of 8 per cent by 2018 is still insufficient, according to an industry working group, with a longer-term goal of 12 to 15 per cent needed to ensure people have an adequate replacement ratio in retirement.
Speaking yesterday (15 September) at a session organised by the Tax Incentivised Savings Association, industry members of its policy project TSIP stated the government must start planning for ways to almost double the existing target, which itself more than doubles the contribution levels expected of those joining schemes.
Minimum rates currently stand at 2 per cent but are expected to increase to 3 per cent from employees and 5 per cent from employers by October 2018.
Rosie Anand, workplace pensions marketing director for Legal and General, said employers must begin to step up their communication efforts with employees, establishing a ‘Save More For Tomorrow’ best practice standard.
“Employers should also be given safe harbour to be able to really promote these benefits to employees,” she added, noting that the 8 per cent level needs to be a widely understood target in three years time, while younger people must be made aware of the accessibility options now available at retirement.,
The TSIP group set out some goals for government to work towards, including a framework for contribution increases of between 0.25 and 1 per cent in any 12 month period, driven by economic trigger such as three successive quarters of economic growth.
Ms Anand also suggested that employers should be able to offer ‘opt down’ options to avoid those struggling to make higher contribution levels from fully opting out of pension schemes, while at the other end of the scale giving further incentives to those wanting to accelerate contribution levels.
Jamie Jenkins, head of workplace strategy at Standard Life, added that those enrolling in 2018 “should not be daunted” by the 8 per cent target, with measures in place to make sure they are able to work towards it gradually.
Responding to questions from the audience, he also argued that while in many ways it would be easier, the UK should avoid pension contribution compulsion.
He said: “I think this would be viewed as a failure of the system, a tax rather than a nudge.”
Earlier this year, at a pre-election event, the previous pensions minister outlined his insistence that the process of auto-escalating pension contributions must start as soon as the next parliament does.
Steve Webb stated: “From day one this should be a priority, precisely because the lead time on this is so long and such incremental increases can’t be done quickly, we need to get started right away.”
However, at that event, the Conservative’s once hot favourite for the same post, David Gauke, suggested that while it’s something that should be looked at in due course, “a balance must be struck” between higher contributions and actual income growth.
peter.walker@ft.com
