With the Budget done, if not quite dusted, HM Treasury and the Department for Work and Pensions can turn again to progressing its joint departmental Pension Review currently under way.
The top priority should be to set a roadmap to increase auto-enrolment contributions. Yet I fear this may not happen in this parliament: an increase in employer AE contributions on top of the Budget hike in their national insurance payments could cripple businesses.
The ambitious two-part Pensions Review focus is mainly on workplace defined contribution pension schemes and tackling waste in the system. Has the review the right priorities?
Advisers know only too well there are myriads of pension problems from fraud, cyber attacks to basic bread and butter issues like poor record keeping. No doubt, they can find plenty of others on their wish list.
According to the Mercer CFA Institute Global Pension Index 2024, the UK has slipped down the international ranking to 11th place.
Not so long ago, the UK had arguably one of the best three pension systems in the world. A national shame when we prided ourselves on the excellence of our financial services. The name of the City of London should be synonymous with all round financial excellence and not settle for anything less in any field from fintech to protection.
Use phase two to boost AE
I hope phase two of the Pension Review (whose parameters are yet to be set in detail) focuses on improving pension adequacy, but I fear that Sir Steve Webb, former pensions minister, and now partner at LCP, has sadly hit the nail on the head: “With employers already having to absorb a big increase in payroll costs, it seems highly unlikely that the government will try to double dip and ask employers to pay more for pensions any time soon.”
The AE total contribution rate is still 8 per cent with employers contributing just 3 per cent. It has been my great hope for years that this could level up to match employee contributions at 5 per cent.
Progress has been glacial indeed; it is more than 12 years since the 2012 AE reforms came into being.
As Webb said on Budget day: “Even the modest improvements to AE, for which legislation has already been passed, are at risk of being stuck in the slow lane. This is a worrying day for anyone who cares about the adequacy of pension saving in the UK."
It is not just one or two siren voices blowing in the wind. Damon Hopkins, head of DC workplace savings at consultancy Broadstone, points out: “With the exception of very small businesses, this revenue-raising measure is likely to have immediate knock-on consequences whether that is pausing hiring, scaling back or scrapping pay increases and/or reviewing existing employee benefit arrangements.”
The DWP has already found that 38 per cent of working age people (equivalent to 12.5mn people) are not saving enough for retirement.
