Pressure is growing on the minimum auto-enrolment contribution rates.
Last week’s Pensions Policy Institute report found that 8 per cent of band earnings would result in inadequate replacement incomes in more than half of the scenarios modelled.
In a quarter of the cases, retirement income was set to be less than 75 per cent of the targeted replacement ratio.
I wonder if this is a fair-weather argument
This followed the National Association of Pension Funds’ chief executive Joanne Segars highlighting the inadequacy of the auto-enrolment minima at the organisation’s annual conference.
The PPI and NAPF are not the first – nor I’m sure would they claim to be – to point out the reform’s shortfall on contributions.
In March, the OECD’s principal economist was quoted in these pages saying contributions “had to be higher” – citing a level of 15 per cent to get a decent replacement ratio – and said the government should raise them over the next five to 10 years. And it’s something I’ve gone on about a fair bit too.
The latest interventions do represent a growing consensus that the early success of auto-enrolment, in terms of participation, needs to be built upon.
However, some time should be given to the other side of the argument. In reaction to Segars’ comments, the Confederation of British Industry announced it was “deeply misguided” to suggest a change mid-rollout.
“State-mandated minimum contributions must be affordable for all companies and workers,” said director for employment and skills Neil Carberry in a release. “Many companies might be able to do more but this should be based on their circumstances.”
In DB land, schemes are being urged to take into account the impact of pension costs on the sponsoring employer, and this principle could well be extended to DC.
It is naive to hope the government’s final defined ambition plans will produce a philosopher’s stone that turns small DC contributions into an adequate, guaranteed (to an extent) pension pot.
Everyone agrees that more needs to go in. But I wonder if this is a fair-weather argument. If this reform struggles with non-compliance or high opt-out among smaller companies, we might be fighting for what we have, rather than asking for more.
Ian Smith is editor of Pensions Week. You can follow him on Twitter @iankmsmith and the team @pensionsweek.
