Department for Work and Pensions deputy director of pensions and ageing Adrian Richards says increasing auto-enrolment contribution rates too quickly could damage the economy.
Speaking at Strategic Society Centre debate on pension contributions today, Richards said he cautions people from “jumping ahead” and says he want reforms to settle down first.
The Investment Management Association has called on the Government to introduce auto-escalation, which is a policy adopted in the US where employees’ pension contributions increase automatically when they receive a pay rise.
Richards said: “It is absolutely critical that we phase in auto-enrolment both to avoid income shocks for employers and employees. By phasing it in it allows agents to adjust.
“In terms of the macro-economy it is a good thing as well because people are withdrawing income that would otherwise be spent.
“The money remains as funds that can be invested but at this moment firms don’t look like they are looking for funds to invest. There is a danger of drawing money out of the economy when it is still fairly fragile.”
Richards welcomed some firms going beyond auto-enrolment contributions out of choice, pointing to a DWP survey showing half of all firms with 250 employees or more were contributing 6 per cent or higher to employee pensions.
He said: “While we need to bed things in and see how it goes before we are interested in enacting further reforms. However, we recognise that 8 per cent will not be enough for many people and we are looking for ideas around re-invigoration or automatic escalation.”