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Time to consider increasing minimum UK workplace pension contributions, says expert


The UK government should consider whether the minimum that individuals that have been automatically enrolled into a workplace pension and their employers must contribute to that pension can be increased without discouraging saving, an expert has said.

Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, was commenting on new figures from the Office for National Statistics (ONS) showing that average contributions have fallen year on year since the introduction of automatic enrolment in 2012. Private sector employees aged between 22 and 29, many of whom have never paid into a pension before, are now paying an average of 1% of their salary towards a pension compared to 3% in 2013, according to the figures.

Tyler said that the number of workers enrolled into pension schemes would continue to rise as automatic enrolment was extended to small and 'micro' employers, a process that will continue until 2018. However, "just being a member of a pension scheme isn't enough to earn a decent income in retirement", he said.

"There is already a timetable in place for auto-enrolment contributions to increase to 8% by October 2018," he said. "The problem is that even contributions at that level may produce disappointing outcomes – but if the government increases contributions by too much too rapidly, members may opt out and employers may squeal."

In August 2014, the UK government published research showing that as many as 11.9 million working age adults were not saving enough to provide them with an adequate retirement income. It said that it would undertake "further work" on contribution rates; although Tyler said that this work would need to "strike a balance between decent outcomes and what can be afforded".

Auto-enrolment began for the largest employers on 1 October 2012, and 'staging dates' by which smaller companies will have to begin the process run until 2018. Under the programme, more than 1.3 million employers will have a legal duty to automatically enrol workers into a pension scheme which meets certain minimum requirements, and will be legally obliged to make contributions towards the pensions of those that do not opt out of the scheme.

The minimum contribution that must be made to a pension by both the employer and the employee once automatically enrolled will be phased in, rising to a minimum total contribution of 8% of earnings by October 2018. Of this, a minimum of 3% will have to be contributed by the employer. The current minimum contribution is 2%, of which 1% must come from the employer.

According to the latest ONS figures, 70% of eligible employees – a total of 13.9 million people - paid into a workplace pension in 2014; a 15% percentage point increase in just two years. Those benefiting in particular included younger employees, 54% of whom made regular contributions in 2014 up from 24% in 2012; and lower paid workers including bar staff and sales staff.

Baroness Ros Altmann, the new pensions minister, said that automatic enrolment was "key to a pensions revolution which is breathing new life into workplace pension saving".

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