Personal Pension  

Lord Hutton: Pension contributions must double AE maximum

Lord Hutton: Pension contributions must double AE maximum

A national retirement contribution target of at least 15 per cent must be adopted if UK savers are to sustain a comfortable retirement, according to a report published by Lord Hutton and pensions consultant Redington.

The proposed target retirement saving figure far exceeds today’s current auto-enrolment contribution level of 2 per cent, and is double the eventual maximum 8 per cent this will rise to by 2018. Of this, 5 per cent will come from auto-enrolled employees.

Speaking at the launch of his report, Lord Hutton, the architect of public sector pension reforms, said that while public policy regarding pension savings has gone through unprecedented change recently, the period of reform is not over.

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“With great change comes great consequences and there is a great deal still to prepare for.”

He stated that people today are almost certainly not saving enough, and that although auto-enrolment was part of the solution, it will not be enough. In fact, elsewhere the report suggested that an even higher rate for pension saving than 15 per cent will eventually needed.

In a chapter written by Ian Price, divisional director for pensions and consultancy at St James’s Place, the report states that the median earner in the UK would have to contribute about 16 per cent into a pension to get a replacement ratio at retirement of nearly two thirds.

“However, the UK projected household saving ratio for 2015 is just 3.3 per cent,” it notes.

Elsewhere, Lord Hutton referenced the Independent Climate Change Committee, saying that “we will need something similar in the area of retirement savings”, adding that if the April reforms do not encourage saving then “we must change course”.

Earlier today, the Work and Pensions Committee said that Financial Conduct Authority is not “sufficiently focused on pensions”, as it called for a single regulator and independent pensions commission.

MPs said that the potential increased risk to pension savers from fraud and mis-selling, following the introduction of the new pension flexibilities from April, strengthens the case for a single pensions regulator.

Pensions professionals almost unanimously voiced support for the proposal of a single regulatory ‘commission’ to oversee pensions.