Raising the minimum pension contributions people make through workplace schemes could add £217,000 to their nest eggs, it is claimed.
Pension experts Standard Life say that raising the contribution level from the current figures for both employees and their employers could take the typical pot up to £651,00 in today’s money once they reach retirement.
The current minimum contributions are 5 per cent for employees and 3 per cent for employers, however the company is lobbying for this to be increased to a minimum of 6 percent for both workers and companies from the age of 22 upwards.
The Government is currently carrying out a review of pensions with a view to helping the nation’s workers build up a nest egg beyond the state pension to help them enjoy a comfortable old age.
Standard Life said: “Auto-enrolment (AE), the requirement for all employers to provide a workplace pension scheme and enrol all eligible employees, will have been in place for 12 years by October and the scheme has brought millions of people into pension saving.
“However, while it’s important any decisions take account of the short-term priorities of both employees and employers, increasing minimum contributions could improve the prospects of UK workers and ensure they are on course for a more comfortable retirement.”
It said a typical 22-year-old could see their pension pot rise from £434,000 to £651,000 in today’s money by the time they reach retirement at 66 if the rules were changed in line with its recommendations.
Standard Life said: “The calculations show that extending AE could have a potentially transformational impact over the course of a career.
“It’s worth noting that there are many people who started saving via auto-enrolment later in life, and so will have less time to build a pot. They could see an even greater relative benefit of higher minimum contributions as they look to secure a liveable income in retirement with less time to save.”
Gail Izat, Managing Director for Workplace Pensions at Standard Life said: “As we approach auto-enrolment’s 12th anniversary, it’s important to celebrate the achievements of the scheme while acknowledging that we need to do more to help people secure a decent standard of living in retirement.
“Our calculations show that raising minimum contributions could be a powerful way of setting people up for pensions success and future financial wellbeing, benefiting both employees and businesses in the long-term.”
She added other countries already set much higher compulsory pension contributions, so setting up retirees for a much better standard of living than their British counterparts.
“In other countries like Australia, where minimum contributions are set to reach 12 per cent from next July, higher contributions have led to greater savings adequacy and a higher anticipated standard of living in retirement than the UK,” she said.
Patrick Thomson, Head of Research Analysis and Policy at Phoenix Insights, Phoenix Group’s Longevity think tank, said: “As many as 17 million UK adults are not saving enough to retire when they want on the income they want, so a plan to increase minimum auto-enrolment contributions is crucial to addressing widespread under-saving.
“Auto-enrolment has been an important policy to boost pension participation, but the current minimum rate is unlikely to provide most people with enough savings to achieve the income in retirement that they want or expect.
“Engagement with pensions is low and there is a risk that people are lulled into a false sense of security that the statutory contribution rate will provide enough savings for their retirement needs. We hope the Government’s review of pension adequacy will pave the way for an increase to minimum contributions when the economic conditions are right.”
