The review would consider the need to increase the amount people and employers pay into their pension pots
A delay to a pensions review that was set to start this year adds to the risks of a “future retirement crisis”, experts have warned.
Pensions minister Emma Reynolds said earlier this year that the second phase of a review into pensions, looking at “retirement adequacy”, would be launched by the end of 2024 – but the Government now only says further details will be set out “in due course”.
Experts had expected that this section of the review would consider the need to increase the amount people and employers pay into their pension pots under auto-enrolment rules.
Currently, employers must automatically enrol most workers into a pension scheme, with staff and their employer collectively paying in a minimum of 8 per cent of their qualifying earnings into this pot – but there have been calls for this figure to be increased to 12 per cent.
It is hoped that by doing so, more people will have enough money to retire on, something many currently do not.
The delay is likely to be a move by Chancellor Rachel Reeves to avoid piling more pain on businesses after the Budget, which saw employers get hit with a £25bn bill for extra national insurance contributions.
Tom Selby, director of public policy at investment platform AJ Bell, told The i Paper: “The longer we delay tackling the adequacy challenge, the bigger the risk to society of a future retirement crisis.
“With the economy still stuttering and the new Government insisting economic growth remains its central objective, tackling pensions adequacy – something which would inevitably have needed more money to go into people’s retirement pots, including from employers – may have slipped down the priority list.
“The challenge when it comes to long-term retirement reform is finding the ‘right’ time to press ahead.”
How to boost your retirement savings
You don’t need to wait for the Government to make pension rule changes to take charge of your own retirement savings. If you want to boost your income in later life here’s what you can try:
Max out employer contributions
If you are employed, your first step should be to check the pension benefits your employer offers. All employers must provide a workplace pension scheme and contribute a minimum of 3 per cent of your salary by law. But some employers will be more generous than this. For example, they may pay in 8 per cent if you contribute 8 per cent.
Take higher risk
The performance of the investments held within your pension will play a big part in the size of your pension pot at retirement age. If you are young, or perhaps are at least 10 years away from your desired retirement age, financial advisers may recommend taking more investment risk. This means putting more of your money in equities (stocks) and less in bonds.
Jason Hollands, managing director of investment platform Bestinvest by Evelyn Partners, says a classic “balanced” investment portfolio of 60 per cent equities and 40 per cent bonds would have grown 380 per cent over the past 20 years. But an equity-only portfolio would have returned 675 per cent, albeit with much greater volatility on the way.
Track down forgotten pensions
It’s easy to lose track of pensions if you’ve changed employers several times over the years. Try to track down any pensions you may have forgotten about. If you have a pension from working in another country, it’s often possible to transfer it to the UK, but the rules vary by the origin country and type of pension being transferred.
Under current rules, all employees aged 22 or older and earning at least £10,000 a year must be enrolled in a pension scheme, with their employer contributing 3 per cent of qualifying earnings into a savings pot, and the employee a further 5 per cent.
In September, Phoenix Group, a savings and retirement business, said in a report that incrementally increasing the default auto-enrolment contributions from 8 per cent to 12 per cent could help to close the pension savings gap.
It said for a typical 18-year-old, increasing minimum auto-enrolment contributions from 8 per cent to 12 per cent could lead to almost £96,000 extra in their pension pot, in today’s money, at state pension age.
The Government’s pension review is in two parts. The first phase looked at investments: an interim report sketched out plans to merge local government pension scheme assets and consolidate defined contribution (DC) schemes – which most private sector workers use to fund their retirement – into a smaller number of larger schemes, dubbed “megafunds”.
The second part of the review was widely expected to cover auto-enrolment, and whether minimum contributions should be increased.
The plan to delay the second part of the review was first reported in the Financial Times on Saturday.
Sir Steve Webb, former Liberal Democrat MP and pensions minister, said: “Absolutely, a delay to this review will damage people’s retirements – it really matters.”
Sir Steve, now a consultant at LCP, said the delay was somewhat “predictable”, as change coming out of the review would be likely to have resulted in employers having to increase their contributions to employees’ pensions.
He said: “Going to employers for more money was going to be a long shot after the policies we saw in the Budget, which is obviously already adding to the financial pressure on businesses. As soon as Reeves sat down after that Budget I thought the chance had massively decreased.
“The chance of change happening this Parliament is now receding. To increase employer’s contributions from 3 per cent, we would need a change in law, and we have probably missed the boat for doing this next year now.”
Catherine Foot, director at Phoenix Insights, said: “Hitting pause on the retirement adequacy review could have a huge determintal effect on people’s financial future. In the next five years, the majority of defined contribution pension savers will enter retirement with less income than they expect or need, and this will worsen to a peak in the early 2040s.
“There are clearly some valid concerns around what increases to auto-enrolment contributions might mean for businesses, but that shouldn’t stop analysis and consensus-building on how and when we address the retirement crisis unfolding before our eyes.
“Increasing minimum auto-enrolment contributions is one of the biggest levers to tackle undersaving and we cannot afford to delay setting out a plan to incrementally raise contributions.”
A policy review in 2017 under the Conservative Government suggested lowering the age threshold for automatic enrolment from 22 to 18, and altering the rules so contributions are made from the first pound earned rather than from earnings over £6,240, as is the case now.
These recommendations have not yet been implemented seven years later.
Some 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, according to research by the Institute for Fiscal Studies this year.
A Government spokesperson said: “Creating wealth and driving growth is at the heart of our Plan for Change. 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 and why the Pension Schemes Bill was in the King’s Speech.
“The interim report of the first phase was published at the Mansion House event on 14 November and the final report will be published in the spring. Government will set out more details on the second phase in due course.”