The Labour Government could force businesses to make drastic changes in the years ahead as part of its wider pension system overhaul in a move some believe could be a “disaster waiting to happen”.
Reports suggest Chancellor Rachel Reeves is considering coercing employers to raise pension contributions to address the UK’s oncoming retirement crisis.
The Government has been in talks with pension providers about adopting a similar pension system to the one used in Australia.
In terms of workplace retirement plans, Australia’s is considered far more generous than most schemes in the UK.
Employers “Down Under” have to put 11. per cent into a worker’s pension which is set to jump to 12 per cent in 2025.
Meanwhile, employers in the UK only have to contribute three per cent to their employees’ scheme with the combined minimum rate for both parties being eight per cent.
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Shadow Chancellor Rachel Reeves is making big changes to the pensions
GB News
Melbourne-based asset manager IFM Investors has confirmed it has meet with Reeves to talk about Australia’s pension system, notably in regards to employer contributions.
The Treasury has also reportedly been in talks with pension provider Standard Life about the benefits of raising pension contributions in this way.
Experts believe Labour is more likely to focus on lowering the age of auto-enrolment in the short term as part of its early reforms.
Many believe the Government will commit to 50-50 employer and employee contributions in the upcoming Autumn Budget.
Mike Ambery, the Retirement Savings Director at Standard Life, told The Telegraph: “There are huge potential benefits to auto-enrolment minimum contributions rising, whether employer or employee, to both individual savers and the UK economy.
“Long-term, it could be a solid investment in the future.”
However, he warned that a “strong framework” will need to be in place to ensure employer contributions are raised while economic growth continues.
Despite pensions being high up Rachel Reeves and Labour’s agenda, trade associations are warning the reform proposals could be a “disaster” if implemented in the wrong way.
Tina McKenzie, the UK policy chair of he FSB, explained: “The Government needs to take extreme care before even thinking of adding more weight to the shoulders of small firms with increases to compulsory employer pension contributions.
“Adding even more pressure on employers is a disaster waiting to happen for the jobs market.”
LATEST DEVELOPMENTS:
The British Government is taking inspiration from Australia’s pension system
PEXELS
In 1992, Australia first introduced mandatory pension contributions at a rate of three per cent with the Government raising it to 11 per cent by 2024.
Currently, the first part of the new Labour Government’s pension review is focused on increasing consolidation and boosting investment in productive assets.
A DWP spokesman said: “Automatic enrolment has had a positive impact in transforming the pensions landscape by enabling 22 million workers to save into a workplace pension.
“As part of our landmark pensions review, we will explore options to expand on this success to ensure the pensioners of tomorrow have the dignity and security they deserve in retirement.”