Government should ‘level up’ pension contributions – PLSA

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Nearly half of adults who are not retired say the rising cost of living prevents them from saving, while more than three-quarters think it is a good idea to pay into a workplace pension. On the back of the data, the PLSA is calling for ‘levelling up’ pensions to 12% minimum contributions on all earnings, split evenly between employer and employee, by 2030. 
 
The use of food banks was already at record level before the planned increase in the energy price cap. An increase in CPIH to 4.8% will come on top of this, with an energy price cap rise that is predicted to push energy bills up by about 50% for the average household. 
 

‘Public sees value of saving towards retirement’ 

 
A survey by the Pensions and Lifetime Savings Association, conducted at the start of this year, now shows that this is having a direct effect on people’s ability to save. Almost half (47%) of adults surveyed say they cannot afford to save, while less than a third (32%) say that they can afford to contribute more to their pensions now.  
 
Despite the uncertain economic outlook, the PLSA argues that by the late 2020s, the government should increase the auto-enrolment minimum contribution to 12% of all salary, from the current 8% of band earnings. The survey suggests that most people would welcome this, as 78% of those not retired say they think it is a good idea to pay into a workplace pension. 
 
“Many savers face substantial financial difficulties over the short term due to the Covid-19 pandemic but, over the longer term, the public see the value of saving towards retirement in a workplace pension. Moreover, while half of those responding to our survey say they cannot afford to save more now, a third do consider themselves able to do so,” said Nigel Peaple, director of policy & advocacy, adding that the rules of automatic enrolment should be designed to give people an adequate income. 
 
“We, therefore, support the government’s promise to extend pension saving to younger people in the mid-2020s and to increase the amount of saving so that it is on the first pound of salary. But it is also important that the government 'levels-up' pensions so that, by the end of the decade, pension contributions are increased from 8% to 12%, split evenly between employers and employees,” he said. 
 

Two-fifths agree contributions should rise  

  
The PLSA wants to see pension contributions ‘levelled-up' – split evenly between employers and employees – by 2030, meaning the employer would be paying 3% more than now and the employee paying just 1% more. If an employee cannot afford the extra 1%, they should be given the choice of staying at the current level of 5%, the PLSA proposes, noting that 41% of those surveyed agree pension contributions should rise to 12%, and only 16% were against the idea. 
 
In addition to increasing minimum contributions and equalising them between employer and employee, the PLSA is urging the government to put in train the reforms it has promised it will implement by the mid-2020s, namely reducing the minimum age for auto-enrolment to 18 and scrapping the lower earnings band.

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