The UK’s largest fund manager has called for a significant increase in minimum pension contributions – doubling the current 8% of pay to 16%, according to reports.
Stephen Bird, CEO of Abrdn (formerly Standard Life Aberdeen), argues that the existing contribution rates are insufficient to provide an adequate income in retirement for millions of people. He calls for more “visionary thinking and boldness” from ministers to address the issue.
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.”
Last year, due to the cost-of-living crisis, one in 10 adults stopped pension contributions. Around 5% of UK adults stopped paying towards their company’s pension plan to save money as inflation continued to rise.
While many experts agree that higher contributions are necessary, such a substantial increase could face resistance from employers, particularly small businesses, and might lead to more employees opting out of pension saving.
A private members’ bill is going through parliament with the government considering the changes which would reduce the age for auto-enrolment from 22 to 18. This would bring another 900,000 people into the pension-saving net and would give them four more years of pension saving before retirement, as reported by The Times.
What’s more, Craig Beaumont of the Federation of Small Businesses believes a move to 16% would be “extreme and unaffordable” and suggests giving time for the proposed age and earnings limit reforms to take effect.
The Pensions and Lifetime Savings Association calls for a gradual rise to 12% over ten years, with the majority of the increase funded by employers.