Pensions minister Steve Webb says the next Government will need to address automatic enrolment minimum contributions because current levels are “not enough” to deliver sustainable retirement incomes.
The auto-enrolment reforms have been hailed as a success by the Department for Work and Pensions, with over 3 million people enrolled into a pension scheme since October 2012 and opt-out rates estimated at below 10 per cent.
Currently minimum auto-enrolment contributions are set at 1 per cent from the employer and 1 per cent from the employee.
From October 2018 the minimum employer contribution will rise to 3 per cent, with 4 per cent paid by the employee and the remaining 1 per cent coming through tax relief.
Speaking to Money Marketing, Webb indicates raising the minimum contribution will form part of the Liberal Democrat manifesto ahead of the general election in May 2015.
He says: “At some point a future Government will have to deal with the great ‘8 per cent is not enough’ question. Arithmetically 8 per cent is not enough for lots of people but how do you fix that?
“There are lots of different ways you can deal with that. I have some thoughts but that will be a big challenge for the next Government.”
Webb has previously suggested auto-escalation, where a person’s contributions increase when their salary goes up, could be an option for the UK.