Proposals to increase minimum auto-enrolment pension contributions made by both private sector staff and employers could end up driving people away from schemes altogether, the CBI has warned.
From next year, unless employees choose to opt out, they and their employers will be required to pay a minimum of 8% into an occupational pension pot. The scheme will initially cover about 10 million personnel working in large companies.
But the Workplace Retirement Income Commission, led by former chairman of the Treasury Committee Lord McFall, has warned that the government should consider upping minimum contribution levels by 2017 and that the industry also needed to give workers a better deal.
Otherwise a third of the UK workforce, the equivalent of nine million people, could face a “bleak old age”. The current pensions system was “complex, costly and inefficient”, the Commission said, many people were not saving enough for the retirement and scheme charges were opaque.
“People need to get more bang for their buck or they are not going to bother with a pension. Instead, they will end up spending today, ignoring tomorrow and scraping by in poverty on the state pension. The complacency of many in the pensions industry is alarming,” the Commission said.
Lord McFall was commissioned to undertake an independent investigation of the state of the sector by the National Association of Pension Funds, but the review did not cover public sector pensions, which the coalition government is planning to change significantly.
But Neil Carberry, director for employment at employers’ lobby group the CBI said that upping contribution levels was “not the right answer” and that a floor of 8% remained the “best way to ensure more people who can afford to save do so”.
Further increases would only put employers and employees under “even greater financial pressure, and may drive people away from pension saving altogether”, he warned.
Moreover, employers should be provided with more freedom to design pension schemes that worked for them and their staff, which meant simplifying the rules and encouraging staff engagement rather than being subjected to “top-down solutions”, Carberry said.
