Workplace pension action plan needed for next decade, says ABI


Minimum contributions to occupational pensions should be gradually increased over the next decade and access to schemes should be widened, a body representing insurers has called for.

Automatic enrollment in company pension schemes began almost 10 years ago, with companies and their employees being phased in from October 2012.

The Association of British Insurers (ABI) said an action plan is now needed for the next 10 years.

This would build on the success of the program which has enabled more than 10 million people to benefit from a workplace pension plan, including many more women, low-income people and young people, thus constituting a advantage for their future.

The initiative currently requires employers to automatically enroll employees aged over 22 and earning at least £10,000 a year into a workplace pension scheme.

Auto-enrollment successes and low opt-out rates have saved more than £28 billion more in occupational pensions in 2020, compared to 2012.

But despite the huge increase in the number of savers, some people are not saving enough for a comfortable retirement, with minimum contributions probably not enough for many people.

To close this gap, the ABI recommends gradually increasing minimum contribution rates from 8% to 12% by 2032, with the new minimum contribution split equally between employers and employees.

Its report suggests a timeline, with changes starting to be introduced after 2025.

Currently, the minimum of 8% includes a minimum employer contribution of 3%, of which 5% comes from the employee. Contributions also benefit from tax relief.

With the cost of living in mind, the ABI recommends that savers have flexibility as minimum contributions potentially increase, including allowing them to “drop” to 10%.

Alternatively, he suggests that a minimum contribution could be set at 10% with the option to “increase” up to 12%.

He said more research is needed to determine what is most affordable for employers and savers.

The ABI said it was also urging the government to bring forward commitments to expand automatic enrollment, lowering the age threshold from 22 to 18 and lowering the income threshold so that contributions are paid as soon as possible. the first pound won.

These were planned for the mid-2020s and need to be legislated urgently, the body said.

Current automatic enrollment structures are unlikely to work for the self-employed, according to the report.

Instead, they need their own system which could be based on diverting increased National Insurance contribution payments, he suggested.

The ABI said it also believed the government should revisit the debate on early access to pensions in times of specific financial hardship.

ABI Chief Executive Hannah Gurga said: “Auto-enrollment has transformed workplace retirement savings in this country.

“But the challenge remains to ensure that people save enough for their retirement.

“For the next 10 years, we need a detailed plan to achieve higher dues.

“Our report released today sets out the industry’s thoughts on how to get there – we stand ready to work with the government to ensure the next decade of auto-enrollment builds on the proud record of its 10 first years.”

Dr Yvonne Braun, Director of Policy, Long-Term Savings and Protection at ABI, said: “The enormous success of auto-enrollment reflects a long-term plan based on consensus between political parties, industry and employers.

“We need the same approach now to determine the future of the policy, ensuring that more people are included and save enough, with the right level of flexibility.

“Our report outlines key milestones for the next chapter of auto-enrollment and sets out specific recommendations for adapting and evolving the policy.

“We also need to see more people engage with their retirement savings, which is why the industry has come together to kick off retirement engagement season.

“By paying more attention to their pension, people will be able to understand if they are saving enough and what action they might need to take if they are not.”

Phil Brown, director of policy at B&CE, provider of The People’s Pension, said: “Millions of people are only paying the minimum contribution to their pension, which in many cases will not be enough for people to live on. retirement.

“While a conversation on the minimum contribution rate is desperately needed, it shouldn’t just be between the pensions industry and government, we also need to find consensus between employers and unions.

“The current climate of a cost of living crisis means now is not the right time to do this, but we must be prepared to consider the future of automatic enrollment once the economic situation improves. “

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “Increasing savings levels is a delicate balancing act. We need people to save more for tomorrow, but not at the cost of hurting them today and the pandemic and the current cost of living crisis have had a significant impact on people’s financial resilience.

Nigel Peaple, Director of Policy and Advocacy at the Pensions and Lifetime Savings Association (PLSA), said: “Firstly, from the mid-2020s the government should implement its plans to expand savings- over 18 and start saving for retirement every savings book.

“Then, towards the end of the decade, pensions should be ‘levelled’ so that employers match employee contributions. This would mean that 10% of salary would go into pensions, but would not require additional contributions from workers.

“Finally, when affordable, in the early 2030s, dues should be raised to 12%.”

A government spokesperson said: ‘Auto-enrollment has succeeded in transforming retirement savings, with more than 10.6million workers registered for a workplace pension to date and £28billion additional savings in 2020 compared to 2012.

“The Government’s ambition for the future of automatic affiliation will allow people to save more and start saving earlier by removing the ceiling on contribution income and lowering the age of automatic affiliation to 18 in the mid-2020s, to the benefit of younger, low-income people – salaried and part-time workers since they will receive contributions from their employer from the first pound earned.

“We want to make sure these changes are made in an affordable way and time, balancing the needs of savers, employers and taxpayers.”

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