Seven in 10 UK adults support increasing minimum AE contribution rates
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Seven out of every 10 UK adults (71%) agree that government should plan to increase the minimum auto-enrolment pension contribution rate if it produces inadequate incomes for most people to live off in retirement, according to new research from Phoenix Group.
Not asking the Earth
Most of those surveyed determined an ‘adequate’ income in retirement to be one where ‘basic needs are covered with some money left over for non-essentials’, and the majority believe the government has a responsibility to ensure this standard is achieved.
Voting intentions had little effect on this view, as eight in 10 polled (83%) support a government review to see whether the current pension system is delivering these outcomes.
Pension plans working in harmony
Phoenix Group wants to see a new pension adequacy review to support long term financial security that covers cover both private and state pensions, and whether they are complementary and delivering good retirement outcomes overall.
Catherine Foot, director of Phoenix Insights, Phoenix Group’s longevity think tank, said: “Auto-enrolment has been successful in kick-starting pension saving for millions of people, but the current minimum contribution rate is too low for most savers to achieve an adequate retirement income and may be giving some a false sense of security.
“We need a government plan to increase contributions and help address the pension saving gap, as part of a wider review of the pension system to ensure it is helping people to save enough and be more financially secure over the long-term.
“Delays and inaction on this could leave generations of future retirees unable to enjoy the lifestyle they hoped for when they retire or struggling financially, with millions more relying on state support later in life.”
How actuaries can help
Stewart Hastie, a senior partner at Isio who takes office as chair of the Association of Consulting Actuaries from tomorrow, has characterised dealing with the savings adequacy crisis as “the defining challenge of our generation”.
While actuaries have focused on protecting past benefits in recent years, DB schemes are now largely well funded and actuaries “have an important role to play in helping organisations shape future pensions provision to deliver better and more equitable outcomes for their workers and savers”.
The ACA has launched a pensions and savings manifesto that indicates 12.5 million people of working age are under saving for retirement.
“The ACA continues to support a phased stepping up of auto-enrolment minimum contributions,” said Hastie, “but we also believe that DB schemes have a positive role to play in terms of supporting future growth and adequate pensions provision.
“We call for the recent DWP initiative to encourage and facilitate the greater use of DB surpluses to be fast tracked. Unlocking surplus from DB schemes, for some employers, could help meet the costs of higher levels of pensions contribution for today’s workers.”
Every little helps
WTW published a white paper into retirement adequacy at the end of April that recommended increasing pension contributions to ensure individuals have enough savings for retirement.
Helen Gilchrist, head of DC consulting at WTW, said the retirement adequacy issue in the UK requires immediate attention.
“Enrolling employees into DC schemes at a higher default level is one very practical way of addressing long-term adequacy issues,” said Gilchrist.
“We know that even those that can afford to contribute more, and know they should, often need encouragement in order to do so.”
Raising minimum contributions is the single most powerful mechanism available, said Gail Izat, managing director for workplace pensions at Standard Life, part of Phoenix Group.
“While it’s important that we move when the time’s right for both savers and employers, prolonged inaction risks continued under-saving and the UK sleepwalking into a retirement savings crisis.
