Is the minimum pension contribution about to rise?

The Pensions and Lifetime Savings Association, representing UK pension schemes, has called on the Government to increase the minimum contribution level after concerns around the number of people not prepared for retirement.

Currently the level is set to 8% of pensionable earnings, defined as a worker's basic salary excluding bonuses, commission, and overtime. Of this, employers are required to contribute at least 3%, while employees contribute 5%. It was proposed to increase this to 12% of total salary over the next decade, with employees and employers each contributing an equal share.

The annual retirement report, published this week by Scottish Widows, reveals that the percentage of people not on track for even a minimum retirement lifestyle has risen from 35% to 38% during the last year, equating to an extra 1.2 million people.

The Proposals

The proposal to raise the minimum contribution level from 8% to 12% with a 50/50 split is intended to enhance the retirement savings of over 15 million private sector employees. The proposals also include measures to help workers track their pensions when they change jobs, introduce value for money tests for pension schemes and include initiatives such as helping employees keep track of their pensions when they move jobs.

Industry professionals highlighted the urgency of increasing minimum contributions, which currently stand at 8% of pensionable salary, of which companies must pay at least 3% and employees 5%.

The Government announced that its pension bill measures could add an extra £11,000 to the pension pot of an average worker, although no supporting analysis was provided to explain how this figure was calculated. The bill includes an initiative to ensure schemes offer “value for money,” with underperforming funds being removed from the market.

The Government stated that these measures would “enable security in retirement” while allowing pension schemes to invest in a broader range of assets, which should, in turn, help to promote economic growth.

Currently, most people are left on their own to navigate the complex retirement income market. If you’re interested in how to manage your pension contributions to ensure the best possible wealth protection for you or your family, we can help. Give us a call on 0333 323 9065 or book a free non-committal initial consultation with a member of our team to find out more. 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.