The boss of one of Britain’s biggest fund managers has called for a doubling of minimum pension contributions from 8% of pay to 16% in what would amount to a huge change to the retirement saving rules.
Stephen Bird, the chief executive of Abrdn, said millions of people were heading for an inadequate income in retirement because the present minimum 3% contribution from employers and 5% from employees was not nearly enough.
Writing in The Times, Bird said: “To have any chance of achieving decent retirement outcomes, the contribution rate needs to double — taking it closer to the levels seen in other developed economies, or indeed, the Abrdn employee scheme.”
More “visionary thinking and boldness” was needed from ministers, said Bird, whose firm manages £368billion of savings for pension funds and individual investors.
Minimum contribution rates were initially set at 1% for employers and 1% for employees in 2012 when the auto-enrolment pensions regime was first phased in, and were raised in both 2018 and 2019.
While most experts agree that contributions need to be higher, any suggestion of large increases in contributions could meet serious resistance from employers, especially small businesses struggling with labour costs.
It also could lead to more employees opting out of pension saving, as well as costing the government more in tax revenues forgone.
Ministers are pushing up contributions in other ways. A private members’ bill is going through parliament with government blessing that would reduce the age for auto-enrolment from 22 to 18. That would bring another 900,000 people into the pension-saving net and would give them four more years of pension saving before retirement.
The bill also envisages scrapping the lower earnings limit. This would pave the way for contributions on every pound earned, not merely earnings above £6,240 a year.