Workplace pension provider Now: Pensions is asking for a debate on the fairness of auto-enrolment contributions, since individual will have to pay more for their pensions than their employers in the near future.
Speaking at the Pensions and Lifetime Savings Association (PLSA) in Manchester, Troy Clutterbuck, interim chief executive of Now: Pensions, said “the way that minimum contributions are set now ends up skewing the cost more to employee than the employer”.
He said: “Is that right? It might well be. But we haven’t had that debate.”
Currently the minimum total auto-enrolment contribution is 2 per cent - 1 per cent each from the employee and employer.
From April 2018 the minimum total contribution will increase to 5 per cent, with the employer paying 2 per cent. One year later, it will increase again to 8 per cent, with the company paying just 3 per cent of that total.
A total of £17bn a year will be going into workplace pensions by 2019 to 2020 because of auto-enrolment.
Mr Clutterbuck also argued that this skew between employee and employer “is counter-intuitive almost” when comparing the UK’s pension system with other countries.
According to a report from Pensions Policy Institute (PPI), commissioned by Now: Pensions, UK employers are bearing less of the pensions burden than other countries that have nationwide auto-enrolment schemes or nationwide defined contribution plans.
The study, which examined pension provision in Italy, New Zealand, Japan and Denmark revealed that in the UK, employers making auto-enrolment minimum contributions will be bearing just 37.5 per cent of the contribution burden.
This compares to 84.8 per cent in Italy, 66.7 per cent in Denmark and at least 50 per cent in Japan.
The only country which is less generous than the UK is New Zealand where some employers bear only 27 per cent of the burden.
Nevertheless, that increases to 50 per cent for employees that select New Zealand’s bottom tier.
Further research conducted by the provider revealed nearly a quarter of savers “definitely will” or “might” opt out, when minimum contributions hit 8 per cent of qualifying earnings in 2019.
But, nearly three quarters of those that intend to opt out say they would either “definitely” or “probably” continue to save into their workplace pension, if contributions were rebalanced and employers put in a minimum of 5 per cent with a 3 per cent staff contribution.
According to Nathan Long, senior pensions analyst at Hargreaves Lansdown, “contributions need to strike a very delicate balance between being enough for a comfortable retirement, yet not too great that they become a burden for business or indeed for staff.”
He said: “Contribution increases in 2018 and 2019 should be closely observed to ensure any future policy decisions correctly address this balance.”
maria.espadinha@ft.com
