Scottish Widow’s recently released a report sounding the alarm on the future of UK’s retirement savings. The report still gives cause for concern 35% of those in defined contribution pension schemes may not be able to afford the essentials in retirement. These people are only saving an average of 8% of their eligible income. This shocking figure is a call to action to eliminate the practice of making pension contributions in this manner. Retirement experts have long cautioned that today’s savings simply won’t cut it for a secure retirement.
The legislation that regulates pension contributions only covers the money earned between £6,240 and £50,270 – a band called qualifying earnings. To add insult to injury, the statutory minimum contribution to pension schemes is only 8% of earnings. Employer contributions to this fund usually equal 3%. Workers contribute an additional 4%, and the federal government contributes an additional 1% through tax relief.
Steve Webb, a former pensions minister and now a partner at consultancy firm LCP, advocates for an increase in minimum employer contributions. He makes the case that the federal government needs to “get big” on retirement saving approaches. Beyond that, he stresses the importance of understanding the long-term consequences of underfunded pension payments.
“In a benign economic environment, you would ask employers to pay more,” – Steve Webb.
Blunt Recent national insurance contribution (NIC) increases were already a huge £25 billion. This increases has created great pressure on employers to find additional funds to devote to pension fund payout. Webb acknowledges these financial pressures, stating, “So where’s this money going to come from?”
Even in spite of these limitations Webb continues to emphasize the need to address today’s pension landscape. In this case, he believes that millions of people are under saving for a secure retirement.
“It is widely accepted that for a lot of people, paying in the minimum rate is simply not going to be enough for a decent retirement,” – Steve Webb.
Webb supports repurposing workplace pensions to drive reform. Not only would this amendment benefit workers in meeting immediate cash flow needs, it would allow them the opportunity to save for housing down payments. He urges an overall long-term strategy to meet today’s urgent and unmet needs, as well as future financial obligations.
“There’s a lot to be said for a long-term plan for all of this,” – Steve Webb.