I was pleased this week to hear that the influential Society of Pension Professionals has called on the government to boost the minimum contribution on auto-enrolment pensions from 8% to 12%.
In many ways auto-enrolment is the ‘peoples’ pension’ with an impressive 22m now contributing via their workplaces.
It’s been a big success but there’s a problem - most people are not contributing anywhere near enough, at least not enough for a comfortable retirement and many will face challenges in retirement making ends meet.
This will be easier said than done because there are already signs that many workers contributing to auto-enrolment are struggling to afford the contributions and that’s bad news. A new approach is needed that recognises the problems but is practical and realistic. It may need further government help to get the auto-enrolement express back on the right track.
The SPP suggest employers and employees split the 12% minimum contribution equally between them, ie 6% each. While they want a six year transition period to make the change even this is ambitious, I believe.
It's worth looking at the company pension sector. Many workers in company schemes have enjoyed generous employer contributions over the years, in fact financial services employers themselves were once famed for non-contributory pensions where workers paid in nothing and employers did all the heavy lifting. A Rolls Royce pension for some perhaps but for lower paid workers a passport to second rate pensions.
Currently, employers pay a very modest minimum of 3% and employees pay a minimum of 5% including tax relief. Some 8% in total.
With this in mind, I don’t see why employers cannot be asked to do a bit more, over a transitional period, perhaps doubling contributions to 10% with perhaps 5% from employees. A total 15% contribution overall would make a huge dent in pension poverty and give millions a much better chance of a decent retirement. So even 12% is not enough.
Without a radical shake-up of this kind, we risk many people retiring with meagre, bare bones pensions which fail to keep them comfortably off. Many providers have warned off this glaring retirement gap and it's true that progress on auto-enrolment contributions has been too slow.
If we want retirement to be a period of full quality life and decent living standards we need adequate pensions. Auto-enrolment should not be a cut price option and the cheapest possible fix.
The Pensions Commission is considering the future for pensions, which is welcome, but unless it accepts that many millions not putting away enough we will never deal with the underlying problem of inadequate saving.
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Kevin O’Donnell is editor of Financial Planning Today and a journalist with 40 years of experience in finance, business and daily news. This topical comment appears most weeks, usually on Fridays but occasionally other days. Email: