Aviva calls for pension contribution rate of 12.5 per cent

Aviva calls for pension contribution rate of 12.5 per cent

Aviva called for auto-enrolment contributions to rise significantly to 12.5 per cent by 2028.

This would give people a better chance of building an adequate pension pot for their retirement, the company stated.

Under current plans, contributions will reach 8 per cent by 2019 but there are no plans to go any further. Currently the minimum contribution is 1 per cent.

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The proposal is one of 10 which Aviva has put forward in its auto-enrolment pre-review report, released today (15 November).

Andy Briggs, Aviva UK and Ireland Life chief executive, said: “We’re living longer and healthier lives. But this creates a challenge - how do we support an ageing population?

“By increasing the minimum auto-enrolment contributions, we can improve the retirement prospects of ordinary people.

“AE has already proved hugely successful, but there is no time for complacency as we still face the challenge of people not saving enough for their retirement. So we need to build on the success we’ve had so far.

“I know there will be challenges to increasing contributions, both for businesses and employees, but I believe the benefits would be significant.

“Increasing minimum pension contributions and introducing a simpler and fairer tax system for pensions would be an effective way of giving more people the chance of a decent retirement.”

Based on Aviva’s assumptions, a 22 year old earning a salary of £25,000 saving 12.5 per cent of pensionable earnings could achieve a retirement income of £14,160 a year including the state pension - this equates to a net income replacement rate of 67 per cent.

Last year then-pensions minister Baroness Altmann said contribution rates were “inadequate” but said this would have to be put on the back-burner until the roll-out of auto-enrolment was complete.

She said the government would be “shooting itself in the foot” if it imposed huge contribution rises before large numbers of people have even started saving.

Aviva’s report also recommended extending auto-enrolment to the self-employed, encourage consolidation of small pension pots and adopting a flat-rate of tax relief so workers will “save two, get one free”.