Call for ‘living pension’ to boost contribution levels

Call for ‘living pension’ to boost contribution levels

A living pension standard is needed to encourage employers to raise contribution rates and help workers enjoy a decent standard of living in retirement, a think-tank has suggested.

A report from the Resolution Foundation, published this weekend (January 22), found the current level of minimum pension contributions under the auto-enrolment scheme will not be enough for an adequate retirement.

It has therefore suggested that a standard needs to be introduced to encourage a higher rate of saving.

The report stated: “There is a clear need for a Living Pension standard to encourage and reward employers going beyond auto enrolment minimums, and reassure employees – particularly those on lower incomes – that their workplace pension is designed to deliver a decent standard of living in retirement.”

According to the think tank, the Living Wage Foundation will now use its research to develop and pilot a living pension accreditation standard. 

Calculations from the think tank showed that on average savers would need to save £3,000 a year to meet the living pension target.

For a full-time living wage earner, that is £1,500 a year more than current minimum auto-enrolment requirements and equivalent to an additional 8 per cent contribution rate. 

This also assumes that contributions are made on total gross earnings, in line with the government’s aspiration to remove the lower earnings threshold in auto-enrolment. 

Currently, the minimum pension contribution is 8 per cent: 3 per cent from the employer, 1 per cent from government tax relief and the other 4 per cent from the saver.

As with the living wage, the living pension standard would provide a simple summary figure that can be easily digested by the public.

The living pension levels would be calculated by taking into account a range of factors including, life expectancy projections, mortgage costs, structure of the future tax and benefit system, living costs and wage growth.

Under the proposals, firms should help clarify low and middle income workers and set out how much they actually need for a comfortable retirement.   

Phil Brown, director of policy at The People's Pension, said: "Setting out the minimum income needed for a decent retirement will simplify pensions for everyone. The challenge for the pensions industry is to ensure that people understand clearly how much they need to save to reach that minimum standard."

Meanwhile, Andrew Tully, technical director at Canada Life, said although auto-enrolment has been successful the next challenge is to help people engage more with their pensions.

He said: “Anything which helps people understand how much income they are likely to need in retirement will be very useful. 

“Many are in the dark around how much to save and what size of pension pot they need. This may help them picture their future retirement and what it may cost to meet those aspirations.”

What do you think about the issues raised by this story? Email us on to let us know.