Pensions industry hopes mini-reshuffle could ‘revive’ auto-enrolment debate
Industry executives hope that Torsten Bell’s appointment as pensions minister could “revive” discussions about increasing the contribution rate for auto-enrolment pensions.
Bell took on the pensions brief on Wednesday as part of the mini-reshuffle in the wake of Tulip Siddiq’s resignation as City minister. Emma Reynolds, his predecessor, has taken on Siddiq’s old job.
Bell was formerly chief executive of the Resolution Foundation, a left-leaning think tank that has previously called for higher auto-enrolment contributions, both to finance domestic investment and to improve financial security for retirees.
Auto-enrolment pensions were introduced in 2012 to try and address the decline in workplace savings.
The policy has generally been hailed as a success. In the 10 years after its introduction in 2012, employees across the UK saved £114.6bn on their pensions, a real terms boost of £32.9bn, according to the government’s figures.
Currently, the minimum contribution for these pensions is split, with employers paying at least three per cent and the employee the remaining five per cent.
But Ending Stagnation, a book co-authored by Bell during his time at the Resolution Foundation, argued that contributions should be increased.
“The next phase in its development should be a levelling up of the minimum contributions by both employers and employees to six percentage points (from three and five per cent respectively), representing a 50 per cent increase in total,” he wrote.
“A capped amount of these savings should be made available for everyday contingencies – tackling precarity for individuals as we underpin higher investment for the economy as a whole.”
Many in the pensions industry have pushed for higher auto-enrolment rates, arguing that it will ensure pensioners have adequate savings for retirees.
“In the next five years, the majority of defined contribution pension savers will enter retirement with less income than they expect or need, and this will worsen to a peak in the early 2040s,” Andy Briggs, chief executive of Phoenix Group told City PM.
Briggs said increasing auto-enrolment contributions was the “single biggest lever” that the government could pull to address this issue.
Although the government promised that pension adequacy would form part of the second phase of its pension review, the plans were reportedly put on hold at the end of last year.
According to the Financial Times, Chancellor Rachel Reeves postponed the review “indefinitely” because she was wary about adding extra costs onto businesses after the Budget.
Briggs said the changes can be implemented “as economic conditions allow” and suggested that a “roadmap” would help businesses and households know the direction of travel.
Lisa Picardo, chief business officer UK at Pensionbee, said Bell’s appointment could “revive necessary discussions” about auto-enrolment contributions.
Zoe Alexander, director of policy & advocacy at the Pensions and Lifetime Savings Association, said she was “optimistic” that his appointment would see “progress on both phases of the Pensions Review”.
The first phase of the pensions review has focused on consolidating the UK’s fragmented pensions industry and encouraging schemes to direct investment into the domestic economy.
The deadline for firms to respond to phase 1 was on Thursday.
“Creating wealth and driving growth is at the heart of our Plan for Change. We are determined to ensure that tomorrow’s pensioners are supported, which is why the Government announced the landmark two-stage Pensions Review days after coming into office and why the Pension Schemes Bill was in the King’s Speech,” a Government spokesperson said.
“Automatic Enrolment has turned millions of people into pension savers with around 9-in-10 eligible employees saving for their retirement.
“And more than 15m pension savers could benefit from our new Pension Schemes Bill, with the potential for an average earner to have £11,000 more in their defined contribution pot by retirement when saving over a career.”