If self-employed workers represent the most unwieldy building block, contribution rates are the most structurally important. Former chancellor George Osborne has already delayed the decision once, meaning the rise to 5 per cent won’t happen this year. But sooner or later, a move will have to be made.
You don’t need me to tell you that the fear is that raising these rates – a necessary process to ensure people are saving enough for retirement – will lead to a much higher level of opt-outs. Some are already calling for a delay in announcing a timeline of further contribution increases until the rises to 5 per cent and 8 per cent can be assessed.
But the current halfway house is doing no one any good. The laws of compound interest mean the longer these increases are delayed, the less likely it is employees will have a decent pot available on retirement. And if opt-out rates tell us anything, it’s that inertia is a very powerful force. So rather than a delay, let’s bring things forward. We should be targeting 10 per cent by 2019, and something in the teens soon thereafter.
Contribution rates should also be automatically increased if and when an employee is lucky enough to get a payrise. These changes may frustrate a Treasury that’s looking to encourage more people to save via Isas, but they’d do a better job of ensuring long-term savings goals can be met.