Sunday, June 26, 2022

Experts are urging the government to increase auto-enrollment pension payments over the next decade

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While the program has been a success, more progress needs to be made, the ABI says

Automatic enrollment requires all employers to automatically enroll employees over the age of 22 who earn at least £10,000 a year into an occupational scheme. It has existed for a decade.

Experts are calling on the government to gradually increase the amount of the automatic enrollment pension from 8 percent to 12 percent for minimum contributions.

However, the Association of British Insurers (ABI) is urging the government to lay out how pension contributions can be increased and for eligibility criteria to be widened to encourage people to save more over the next 10 years of the scheme.

The latest report, “Automatic Enrollment: What Will the Next Decade Bring?” highlights that automatic enrollment was a success and its goal of increasing participation was met by enrolling more than 10 million more people in occupational pension schemes.

But despite the enormous increase in the number of pension savers, according to the association, too little is still being saved for old-age provision.

To close this gap, the ABI recommends gradually raising minimum contribution rates from 8 percent to 12 percent over the next 10 years, with the new minimum contribution split evenly between employers and employees.

The report proposes a timeline, with changes to be introduced after 2025.

Looking at the cost of living, it also recommends that savers should be flexible, including the ability to “waive” 10 percent.

Alternatively, a minimum contribution of 10 percent could be set, with the option to “opt-up” to 12 percent.

The ABI is also urging the Government to bring forward commitments already made to extending automatic enrollment by lowering the age limit from 22 to 18 and lowering the income limit so that contributions are paid from the first pound earned.

These were planned for the mid-2020s and urgently need to be enshrined in law.

Hannah Gurga, Director General of ABI, said: “Automatic enrollment has transformed workplace retirement planning in this country. But the challenge remains to ensure people are saving enough for their retirement.

“We need a detailed plan for the next 10 years to achieve higher contributions.”

dr Yvonne Braun, Director of Policy, Long-Term Savings and Protection at ABI added: “The tremendous success of automatic enrollment reflects a long-term plan based on consensus between political parties, industry and employers.

“We need the same approach now to guide the future of policy and ensure more people get involved and save enough, with the right amount of flexibility. Our report outlines the key steps for the next chapter of autoenrollment and includes specific recommendations for adapting and evolving the policy.

“By paying more attention to their retirement, people will be able to understand if they are saving enough and what action to take if they aren’t.”

Other experts have praised the system but said it could result in some people being “lulled into a false sense of security”.

Becky O’Connor, Head of Pensions and Savings, Interactive Investor, says: “The genius of automatic enrollment is that people don’t even have to think about it – for the majority of working people there is a safety net of retirement savings.

“Whereas before automatic enrollment, whether or not you received a decent occupational pension was much more random and depended on who you worked for and whether you were encouraged to actively enroll for the pension yourself.

“Although the new regime has many positive aspects, it was never a ‘one and only’ policy – the intention behind automatic registration was always that it would be improved over time: that minimum contributions would increase and more people would be included in the system.

“As things stand, people with defined contribution pension plans to which they have been automatically enrolled can be happy to have something to show for retirement, but understand that this may not be enough to achieve a good standard of living.

“In a way, automatic enrollment has lulled people into a false sense of security that their retirement is all taken care of. In reality, they may still need to improve their retirement provision by contributing more than the minimum or investing in other products such as ISAs as well. Automatic enrollment is really just the beginning of the retirement story.”

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