Lift auto-enrolment pension contribution to 12 per cent for £10bn boost, report argues

Brits are prioritising securing their family's future before the tax changes

Raising the minimum rate of contribution on auto-enrolled pensions to 12 per cent could boost the retirement wealth of an average 18-year-old by nearly £100,000, a new report has argued.

Research by pensions giant Phoenix and WPI Economics found that lifting the auto-enrolment minimum from its current level of eight per cent could increase pension contributions across the board by £10bn a year.

Auto-enrolment pensions were introduced in 2012 to try and address the decline in workplace savings.

Currently, the minimum contribution for these pensions is split, with employers paying at least three per cent and the employee the remaining five per cent.

The introduction of the auto-enrolment scheme has been hailed as a great success. In the 10 years after its introduction in 2012, employees across the UK saved £114.6bn on their pensions, a real terms boost of £32.9bn, according to the government’s figures.

However, insurers and pension funds have called on the government to increase the minimum level to 12 per cent to ensure people get the retirement support they expect.

The report found that increasing the minimum contribution to 12 per cent could lead to around £96,000 extra at state pension age for today’s average 18-year-old.

Delaying this increase by five years would reduce the total additional pot by nearly £10,000, while a 10-year delay would reduce the savings potential by around £22,000.

“Millions of UK adults are not saving enough for their future retirement income, so it is crucial we have a plan to support greater pension saving throughout people’s working life,” Andy Curran, chief executive of Standard Life, said.

“Increasing minimum auto-enrolment contributions is fundamental to addressing this challenge,” he added.

The report also pointed out that delaying an increase in contributions could impact the UK economy and its transition to net zero.

Assuming a five per cent allocation to unlisted equities in line with the Mansion House compact, every five-year delay to increasing auto-enrolment contributions could cost around £2.5bn in investment into unlisted equities.

“There is a wider economic benefit that pension capital can play in driving investment to sustainable and productive assets, ensuring optimal outcomes for savers remain at the centre of investment decisions,” Curran said.