The government wants to boost retirement savings among the public and has revived the independent Pensions Commission to come up with potential solutions.
The new Commission is seeking views from businesses, unions and taxpayer groups on the best way to achieve this — and will make its recommendations in 2027. Its consensus approach mirrors the first Pensions Commission, launched over 20 years ago, which led to the introduction of auto-enrolment, creating a huge increase in the number of employees saving into workplace pensions.
Despite that boost to numbers via workplace pension engagement, there are concerns that most people make just the minimum level of contributions, which seem increasingly unlikely to fund a comfortable retirement.
Currently, employees (aged 22 and over) pay 5% of ‘qualifying' earnings, with employers contributing 3%, to their workplace pension. These auto-enrolment payments are deducted from earnings between £6,240 and £50,270 — although employees are free to contribute more.
Given the scale of the problem, the Commission is expected to recommend an increase to minimum contribution levels, as well as proposing an auto-enrolment style system for the self-employed who currently lag behind.
Reforming auto enrolment
The Pensions and Lifetime Savings Association (PLSA) has called for a 12% minimum to be introduced by 2030 — split equally between employer and employee. Alternatives include lowering the minimum age for automatic enrolment to 18, and abolishing the lower earnings level, so pension contributions are made from the first £1 of earnings.
Bear in mind that a ‘comfortable’ retirement is currently likely to cost a couple £5,000 a month, according to the PLSA — which will require substantial savings during people’s working life.
You certainly don’t have to wait until the Pension Commission reports to boost your pension funds. If your employer offers a ‘matching’ scheme, then consider increasing pension payments via this scheme first. Alternatively, you may want to look at personal pensions or SIPPs, particularly if you’re self-employed.
If you’re contributing at the minimum auto-enrolment level, or haven’t increased pension contributions for years, it may be time to review whether you are on track for the kind of retirement you’d like and take advice.
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