The head of one of Britain’s largest fund managers called for a doubled minimum pension contribution from 8 percent of pay to 16.
Stephen Bird, Abrdn’s chief executive, stated that millions of people are heading towards an inadequate retirement income because the current minimum contribution of 3 percent from employers and 5 percent from employees is not enough.
Bird stated: “To achieve decent retirement outcomes, we need to double the contribution rate — bringing it closer to levels seen in other advanced economies or the Abrdn Employee Scheme.”
Bird, whose company manages £368bn of pension fund and individual investor savings, said that ministers needed to be more “visionary and bold”.
In 2012, when auto-enrolment was introduced for pensions, the minimum contribution rates for both employers and employees were set at 1%. They were then raised to 2% in 2018 and 2019 respectively.
Even though most experts agree with the idea that contributions should be increased, employers, particularly small businesses who are struggling to pay for labour, may not accept a large increase in contributions. This could also lead to a greater number of employees deciding not to save for their pensions, and cost the government in lost tax revenue. Ministers are increasing contributions through other means. With the government’s blessing, a private member’s bill that would lower the auto-enrolment age from 22 to 18 is being debated in parliament. This would allow 900,000 more people to join the pension-saving net. They would also have four additional years of saving for their retirement. Bill also proposes to scrap the lower earning limit. The bill would allow for contributions to be made on all earnings, not just those above £6,240 per year.
Craig Beaumont of the Federation of Small Businesses said that moving to 16 percent would be “extreme” and “unaffordable”. He said that the potential reforms regarding age and lower earnings limits should be given some time to settle in. While this may be a good thing from the perspective of City fund managers, it would put an unreasonable strain on employees and employers.
The Pensions and Lifetime Savings Association has called for an increase of 12 percent over the next ten years. It said that this could be postponed until after cost-of living pressures have passed. Nigel Peaple said, “We think it’s right that the majority of the increase comes from employers, so by early 2030s pension contributions will be split 50-50 between employer and employee.”
Bird said that putting more money aside for pensions is the first step to a larger debate about the assets schemes are invested in and the ways they can help reinvigorate an economy.