Former pensions minister Steve Webb demanded that more needs to be done to encourage saving for retirement after the latest auto-enrolment data was released today.
Four years after the Pension Regulator introduced the initiative, six million people – or 66 per cent of the working population – have now signed up for the workplace pension. But the concern is that contribution rates of those that have signed up are too low to give people a sufficient income stream during their retirement.
“Given that the firms who have so far taken part in automatic enrolment are the largest employers, the average [employer] contribution rate of just three per cent is particularly disappointing,” said Steve Webb of Royal London Asset Management.
Under the current regime, the minimum employer contribution is one per cent of pay with employees needing to match this. This is scheduled to step up to three per cent and two per cent respectively in 2018, and increase to five per cent and three per cent by 2019.
Webb said that the 2019 minimum levels should be brought in now. He estimated that people the amount actually required to fund the retirement of an average person is double these levels.
However, he admitted that forcing employers and employees to contribute such percentages would be self-defeating. It would mean an unsustainable reduction in take-home salaries and employees would simply opt-out of the regime.
Instead Webb advocated changing to levels pencilled in for 2019, and forcing people to ratchet up contributions as they received pay rises through their working life.
“The 2017 automatic enrolment review needs to consider how we get combined employer and employee contributions up to a realistic level as a matter of urgency. Without this, millions of today’s workers will simply find that they cannot afford to retire,” he said.
With the deadline for employers of 50 people or more having passed in April 2015, most of the larger employers are signed up. Next on the phasing-in process are “small” and “micro” businesses. These represent a long tail and ensuring compliance is likely to be a challenge according to Catherine Pinkney of Paycircle.
“This latest report by The Pensions Regulator has a fair bit of chest thumping about it, but the reality is that we have yet to enter the business end of auto-enrolment. The biggest challenge for workplace pensions was always going to be the smallest businesses, those with as little as one employee. And on that front, it's still very early days,” she said.