For more than a decade, millions of Britons have auto-enrolled in workplace pensions, swelling the nation’s pot of savings.
Now the government is opening the door to a move that could force workers to save more for their retirement, with a review of auto-enrolment rates.
The government is preparing to review the “adequacy” of pension savings and is expected to scrutinise auto enrolment, which was introduced in 2012 and is widely considered to have been a success.
In its current guise, it requires 8 per cent of earnings to be paid into a pension, with at least 3 per cent coming from the employer.
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The pension fund industry has been calling for an increase to 12 per cent, including higher contributions from employers. Australia will reach that level later this year, after raising the rate by 0.5 per cent a year since 2020.
Any move to require extra contributions from employers would inevitably heap extra costs onto businesses at a time when they are paying a higher minimum wage and increased national insurance payments for staff.
A pensions review had been expected earlier this year, but was reportedly delayed following the fallout from Rachel Reeves’s budget, in which she set out to raise £25 billion from employers through higher national insurance contributions.
Torsten Bell, the pensions minister
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Since 2012, more than 11 million people have been enrolled in a pension that they might not otherwise have had, although about 10 per cent of workers exercise their right to opt out of automatic sign-up.
Despite the success of auto enrolment, there are fears that Britons are still not saving enough for retirement. The think tank arm of the FTSE 100 investment giant Phoenix has calculated that 17 million adults in the UK are not building up their pension pots sufficiently.
Torsten Bell, the pensions minister, is expected to launch the review before the summer recess of parliament in July. It will come after the publication this week of what is described as the first phase of the government’s overhaul of the pension industry, which the chancellor has put at the heart of her “No 1 mission” to generate economic growth.
The government is expected to recommend merging 86 local authority pension schemes in England and Wales, which have 6.5 million members, into six funds that will be worth about £50 billion each by 2030. The aim is to give them the clout to pump billions of pounds into key infrastructure projects as well as investment-hungry start-ups.
A bill is expected shortly. Bell has previously said that the government will legislate for permanent pension “superfunds”. The Treasury and the Department for Work & Pensions did not comment.
