Employers should double the amount they contribute to your pension, experts say
A report from the Resolution Foundation also calls for more flexible pensions - that people can access before 55
Employers should be forced to up the amount they pay into their employees’ pensions from 3 per cent to 6 per cent, according to a report.
Auto-enrolment contributions – the amount that automatically gets paid into a worker’s pension by default – should increase from 8 to 12 per cent, according to Precautionary Tales, a paper from the think-tank, the Resolution Foundation.
Currently, employees have to contribute 5 per cent and employers 3 per cent, but the report said this should be changed to 6 per cent each – meaning employers would be doubling the amount they put in.
Employers are allowed to offer more generous schemes, but many just offer the minimum allowed.
These 12 per cent contributions should include a 2 per cent contribution into an easy-access “sidecar savings” scheme of up to £1,000, according to the report, which it said would “revolutionise” the number of families with “rainy day” savings in the same way that auto-enrolment has transformed pension saving.
At the moment, people cannot usually withdraw from their pension savings before they reach 55 unless they are terminally ill, and this will rise to 57 by 2028.
The report said the UK system was “unusually” strict and the Government should offer savers more flexibility, as other countries do.
It proposes allowing savers to borrow the lesser of £15,000 or 20 per cent of the value of their pension pots to deal with financial challenges.
These loans would be paid back via higher contributions directly into their pension pot at a later stage.
This more flexible approach already works in the US, where about one in five participants in pension plans have a loan against their pension at any one time, and around 90 per cent of these loans are repaid to their own funds in full and with interest.
Former pensions minister Sir Steve Webb said at the launch of the report that when he was in his ministerial role he gave short-term saving “almost no thought.”
“This risks being a fragmented area of Government, so what I like about this report is it’s saying that people have holistic problems, and ‘wouldn’t it be nice if we tried to solve them holistically?'”
Molly Broome, economist at the Resolution Foundation, said: “Families across Britain face a triple savings challenge – not saving enough for rainy days, bigger life events, or for a decent income in retirement.
“One in three families in the country have less than £1,000 in savings – which left many people exposed during the cost of living crisis – while around 13 million individuals aren’t saving enough for an adequate income in retirement.
“We can address all three challenges by building on the success of pensions auto-enrolment to opt more people into both easy access and long-term saving.”
Broome added people should have more flexibility over their pension pots, as other countries do, in order to help them with difficult circumstances.
“These reforms will improve families’ financial resilience during their working lives and into retirement too.”
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