Minimum AE contribution rates could rise to 12% by 2030

Holly Roach reports...

Auto-enrolment (AE) minimum contribution rates could rise to 12% by 2030, with a 50/50 split between employer and employee, the Pensions and Lifetime Savings Association (PLSA) says.

Speaking at Pensions & Benefits UK yesterday (25 June), the trade body’s director of policy and research Nigel Peaple said by ensuring the rise is met with an equal employee and employer split, workers would only face a 1% increase while their saving pots would drastically increase.

An easy opt-down option was another idea People aired – where lower earners would have the opportunity to stick at the current 8% level with the option to increase it if and when they can afford to.

Peaple was speaking on a panel alongside Pensions Policy Institute director Chris Curry and Money and Pensions Service senior policy and proposition manager for pensions strategy Jackie Spencer.

However, Spencer suggested 8% is not adequate for a healthy retirement “if it’s all people do” in terms of saving.

But Curry said giving this availability to members could increase engagement. He said “engagement in the future will be different to the past” – noting that we have not had AE before so in 15-20 years’ time when AE is something everyone does, engagement will be very different.

He also suggested that with technology constantly evolving, behaviours towards saving will change. “The pensions dashboard has a role to play in that”, he said, stating it will enable people to understand more about what they have and will “bring ownership closer to the individual”.

However he added the industry can’t rely on the dashboard to engage everyone and change people’s saving behaviour and other work is still needed to boost engagement levels.

While Peaple revealed “opt-out rates are pleasingly low” according to early indications from the latest rise in contribution rates, Curry stated “work around the self-employed issue has not progressed much”.

To enjoy the benefits of being auto enrolled into a pension scheme, a person must be earning over the threshold of £10,000 from one job. This means those who are self-employed or those with multiple jobs, each below the threshold, are not eligible and do not receive contributions from their employer, meaning they miss out on significant amounts of money going into their retirement pot.

The potential changes to contribution rates in the latter part of the 2020s could change people’s saving pots dramatically and Curry hopes a potential pensions bill later this year – should parliamentary time permit – may be an “opportunity to signal the recommendations that need to come in” to ensure all workers have equal access to savings.