Automatic Enrolment: is this the last contribution increase?
As pension advisers we get asked a lot by our employer clients if this April’s increases in statutory pension contribution levels will be the last, or whether there are more increases on the way.
We can say for sure that there are no scheduled increases on the statute books at the current time. The existing policy framework only ever went up to levels we will see come into effect this April. However, in the DWP publication “Automatic Enrolment Review 2017: Maintaining the Momentum” we see some clear signposting of future policy.
Initially we expect the government to focus on the breadth and coverage of Auto Enrolment, targeting younger works (<age 22), those in the ‘gig’ economy and the self-employed for example.
However, we do expect further contribution increases in the 5-10 year time horizon. This is simply a question of adequacy. 8% of qualifying earnings is not enough (in our view) for someone working full time in the UK to maintain their current standard of living in retirement. The independent Pensions Commission backs this up and has identified that the State Pension, supplemented by automatic enrolment contributions of 8% of qualifying earnings would deliver around half (50%) of the level of savings needed to deliver adequate retirement incomes for most individuals.
We can’t say when, and we can’t comment on the levels of the mechanism, but we are sure that the will be an “Auto Enrolment: Phase 2” at some stage in the future.
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