On the go: A living pension standard is needed to encourage employers to raise contribution rates and help workers enjoy a decent standard of living in retirement, a think-tank has suggested.
A report from the Resolution Foundation, published on Saturday, found the current level of minimum pension contributions under auto-enrolment will not be enough for an adequate retirement.
The think-tank has therefore suggested that a standard needs to be introduced to encourage a higher rate of saving.
The report stated: “There is a clear need for a living pension standard to encourage and reward employers going beyond auto-enrolment minimums, and reassure employees — particularly those on lower incomes — that their workplace pension is designed to deliver a decent standard of living in retirement.”
According to the think-tank, the Living Wage Foundation will now use its research to develop and pilot a living pension accreditation standard.
Calculations from Resolution Foundation showed that on average savers would need to save £3,000 a year to meet the living pension target. For a full-time living wage earner, that is £1,500 a year more than current minimum auto-enrolment requirements and equivalent to an additional 8 per cent contribution rate.
This also assumes that contributions are made on total gross earnings, in line with the government’s aspiration to remove the lower earnings threshold in auto-enrolment.
Currently, the minimum pension contribution is 8 per cent: 3 per cent from the employer, 1 per cent from government tax relief, and the other 4 per cent from the saver.
As with the living wage, the living pension standard would provide a simple summary figure that can be easily digested by the public.
The living pension levels would be calculated by taking into account a range of factors, including life expectancy projections, mortgage costs, structure of the future tax and benefit system, living costs and wage growth.
Under the proposals, companies should help clarify low and middle income workers and set out how much they actually need for a comfortable retirement.
Phil Brown, director of policy at The People’s Pension, said: “Setting out the minimum income needed for a decent retirement will simplify pensions for everyone. The challenge for the pensions industry is to ensure that people understand clearly how much they need to save to reach that minimum standard.”
This article originally appeared on ftadviser.com
