Stay informed with free updates
Simply sign up to the Workplace pensions myFT Digest — delivered directly to your inbox.
Chancellor Rachel Reeves has put a review of pensions on hold after fears it could force employers to increase their contributions to staff retirement pots by billions of pounds.
Reeves wants to avoid putting any more pressure on business following an angry backlash over her Budget, which hit employers with a £25bn bill for extra national insurance contributions.
Pensions minister Emma Reynolds had promised to launch a review looking at the adequacy of retirement savings before the end of the year, but this has now been delayed indefinitely.
Under current auto-enrolment rules, staff must pay at least 8 per cent of qualifying earnings into their workplace pension each year, at least 3 per cent of which must come from employers’ contributions.
Many experts believe such rates would leave many people without adequate retirement incomes.
Earlier this year Phoenix Group, the UK’s largest retirement savings business, projected that raising the minimum auto-enrolment level to 12 per cent would result in an additional £10bn in annual pension contributions, shared between employees and employers.
But the Department for Work and Pensions has told the Financial Times it will not launch the second phase of its pensions review this year, with people briefed on the issue saying Reeves had blocked the move.
“Rachel is very aware of the fact that business is facing more tax and she is serious about ensuring that new burdens are not placed on business,” said one person familiar with discussions between the Treasury and DWP.
In the first phase of the pensions review, Reeves announced plans for a series of “megafunds” of at least £25bn each across defined contribution and local government pension schemes, a move she hopes will free up £80bn for investment in start-ups and infrastructure.
Although government officials insist the second phase was not being “long-grassed”, there is no new date for when it might be launched. “It’s ‘TBC’,” said one official.
A DWP spokesperson said: “We are determined to ensure that tomorrow’s pensioners are supported, which is why the government announced the landmark two-stage pensions review days after coming into office. Government will set out more details on the second phase in due course.”
Sir Steve Webb, former pensions minister and a consultant at LCP, said the delay was “deeply depressing” as it could result in “yet more wasted years”.
“The Budget was the death knell for the prospect of any serious progress on pensions adequacy,” said Webb.
When the government announced its pensions review in July, it said it would “consider further steps to improve pension outcomes and increase investment in UK markets, including assessing retirement adequacy”.
Pension experts are concerned that if the delays drag on, that could compromise the retirement prospects of millions of savers.
Research from the Institute for Fiscal Studies this year found that 30 to 40 per cent of savers in defined contribution schemes are on course to have retirement incomes that fall below the minimum retirement living standard set out by the Pensions and Lifetime Savings Association trade body.
“It’s causing us a level of concern because from our perspective it’s a very critical jigsaw piece in terms of the overall review,” said Zoe Alexander, director of policy and advocacy at the PLSA.
“It feels to us that there’s not a moment to lose in terms of having this debate.”
The PLSA has called for the government to gradually increase minimum auto-enrolment contributions to around 12 per cent of an individual’s salary.
Phoenix also said that a 15-year delay in implementing this increase could result in a typical 18-year-old losing approximately £35,000 in retirement savings.
+ There are no comments
Add yours