First 100 days of government: Support adequate pension saving

Thanks to automatic enrolment (AE), 19.4 million people who had not previously saved into a pension scheme are now setting money aside for their retirement.

While AE has been successful in getting millions more saving for retirement, too many are excluded, and many of those with workplace pensions are not saving enough.

Without urgent reform, only half of workers are on track to achieve the target income replacement rates put forward by the independent Pension Commission that proposed the current UK pensions regime, and a fifth will fall short of the Minimum amount needed for a liveable retirement as defined by the Retirement Living Standards. That is even after a record rise in the State Pension in 2024.

The current Government has made very welcome progress, passing an act of Parliament to allow reforms to help young and lower income workers save into a pension but has not yet committed to a timetable to implement these important measures.

And even more action is urgently needed. The measure that will move the dial the most in supporting adequate pension is increasing contributions.

The PLSA is advocating for gradual increases in pension contributions, over the next decade, from the current 8% of only a portion of earnings to 12% of all salary, with employers paying more so that, by about 10 years from now, both employers and employees would pay the same.

Our modelling shows that if our policy recommendations were adopted, by the end of a full working life, the annual retirement income generated from the workplace pensions of a median earning man would increase from £6,200 to around £9,100 and from £5,700 to £8,300 for women, i.e. an increase of more than 45%.

We understand the challenges of asking employees and their employers to pay more money into pensions during a period where cost-of-living concerns have predominated. But we believe there is a way to design the increases, gradually and via an agreed timeline, so that employers have sufficient notice and time to plan and so that the impact on savers’ day-to-day budgets is minimal.

Without further policy intervention, most people in the UK will retire with inadequate pension income.

Repeated delays to the reform of automatic enrolment have consequences. Whoever wins the General Election must regain the momentum if we are to get more people saving into a workplace pension and at higher contribution levels.

To improve retirement incomes for savers, the next Government should:

• Extend automatic enrolment: Introduce the secondary legislation needed to enact the powers contained within the Pensions (Extension of Automatic Enrolment) Act 2023 which will allow saving from the first pound of earnings and from age 18.
• Publish roadmap for raising automatic enrolment contributions: Set out a roadmap for raising contributions gradually over the next decade. Increases in contributions should be split between employers and employees so that each pays 6%. This means an increase of only 1% for employees and 3% for employers so that total contributions reach 12% by the mid-2030s.
• Employment Bill – Scope of automatic enrolment: Bring forth an Employment Bill to bring workers currently locked out of automatic enrolment into the regime so they can start saving into a pension.

Click here to read what other steps the PLSA is calling on the next Government to enact in its first 100 days to help everyone achieve a better income in retirement.

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