Millions of people are at risk of receiving less than the current national living wage when they retire, according to insurer and pensions provider Aviva.
The government auto-enrolment scheme, launched in 2012, has led to an additional ten million workers setting up pension savings. The minimum percentage for contributions, the total from an employee and their employer, increased in April this year from 5% to 8% of salary.
However, Aviva wants this to increase to 12% over the next decade. It claims that “millions of people earning the average wage of £27,500 run the risk of retiring on a pension of far less than £15,000, the equivalent of the current national living wage”, reports The Observer.
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Alistair McQueen, head of savings and retirement at Aviva, told the newspaper: “We need to look again at the auto-enrolment system. It achieved its goal of getting people to save, but the 8% minimum may be inadequate to give people a comfortable retirement. Millions risk disappointment at retirement.”
Former pensions minister Steve Webb fears such a hike would risk large-scale opt-outs. “We need higher contributions from employers so that workers and firms are equal partners in pensions,” he said. “Simply hiking contribution rates risks opt-outs, but there are more creative ways to get people saving more for their retirement without frightening them off completely.”
Ros Altmann, another former pensions minister, said pension companies needed to make their products more attractive and work hard to persuade people to save. “Forcing others to hand the industry more money seems to be a sub-optimal approach,” she said.
Money Saving Expert notes that employees can choose to opt out of the pension, but fewer than 10% had by February 2019. Nevertheless, “there are still more than nine million workers not in any workplace pension”, it says.
In April, a report from investment firm Fidelity found that 62% of self-employed people had no pension, compared with 32% of employed workers.