A forthcoming review will address what experts say is a pensions ‘timebomb’ as millions are failing to save enough – but is not expected to include a fresh raid on firms
Labour is set to reject calls to force firms to hike the amount they pay into workers’ pensions.
The government will on Monday unveil the second phase of a review designed to shake-up the pensions system. Experts warn the UK faces a pensions “timebomb”, with millions of people failing to save enough to give them a decent living in retirement. Industry chiefs have argued one way to tackle the problem should be to increase auto-enrolment minimum contributions. Automatic enrolment was introduced in 2012 to combat the chronic issue of workers not saving for old age. Staff are automatically added to their employers’ pension scheme, unless they deliberately opt-out.
Currently, employers contribute at least 5% of their salary and workers a minimum of 3%. The pensions industry has long called for the combined 8% to be increased – potentially to 12%.
But doing so risked being seen as a fresh raid on business, coming after the row over Chancellor Rachel Reeves’ £25billion hike in employers’ national insurance contributions. Industry sources say it could have cost about £1billion for every 1% increase in pension contributions.
Despite recent reports, the Mirror understands the government will double down on its commitment that there would be no increases in contributions for the entirety of this Parliament. It follows previous comments by pensions minister Torsten Bell.
The pledge will likely came as a relief for companies, which already fear tax hikes in the Autumn Budget as Ms Reeves tries to tackle a black hole in the public finances left by the Tories. But it may concern those who are looking at the review as a “once in a generation” chance to tackle the massive retirement shortfall. Insiders say the review will instead look at the problem in the round.
Mike Ambery, retirement savings director at Standard Life, argued for an even bigger shake-up, with firms and their workers paying into a pension from the first pound they earn, rather than the current £6,420 starting point.
“This is a ticking timebomb and something needs to happen”, he said, pointing to forecasts that by the mid 2040s, over 60% of retirees won’t have an adequate pension. “The government has to grasp the nettle on this,” he added.