Ministers have been urged to increase minimum pension contribution rates immediately to prevent a potential retirement crisis.
According to a new report from the Pension Policy Institute, current contribution rates of 5% for employees and 3% for employers should both rise to 6% due to insufficient savings among millions of people. The Institute predicts that the number of pensioners renting could double by 2041, potentially leading to 145,000 more in poverty and a £3.5 billion increase in housing benefit expenditure.
Between 2012 and 2021, the automatic enrolment into workplace pensions has boosted the number of contributors from 55% to 88%, with £33bn more saved in real terms. However, some warn that without immediate Government action, many will face poverty in retirement due to inadequate savings. They suggest a gradual framework to increase contributions.
Further concerns have been raised by the delay in implementing a 2017 review recommendation to lower the eligibility age to 18 and remove the lower wage limit, potentially costing future retirees significantly. Additionally, the cessation of the dividend tax credit in 1997 has led to substantial deficits in pension funds, exacerbating the shift from final salary to less secure defined contribution schemes.
This shift forces many to rely solely on defined contribution schemes, heightening financial insecurity for future pensioners.
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