Should personal auto-enrolment pension contributions rise above the current level of five per cent?
Yes – Samantha Seaton is chief executive of Moneyhub.
The introduction of auto-enrolment has been hugely positive, and it has offered a great opportunity for people to better engage with their finances.
The hard truth, however, is that even saving the minimum amount is still unlikely to be enough, because the bare minimum will not guarantee them a comfortable retirement.
Despite fears, opt-out rates have been extremely low, and every indication is that this trend will continue following this latest rise. This suggests that there is scope to further increase the employee contribution above the new five per cent rate.
The golden rule of money management is if you saved 10 per cent of everything you ever earn, you should live comfortably in retirement. So we should be bolder, and increase the minimum contribution to 10 per cent.
Employers are well placed to help employees develop better money habits and build financial confidence. Optimising the auto-enrolment scheme means everyone can put enough money aside for the future.
No – Sir Steve Webb is a former pensions minister and director of policy at Royal London.
Getting 10m people to save eight per cent of their pay into a pension – five per cent from the worker and three per cent from their employer – is a huge achievement.
Admittedly, the current minimum contribution rate won’t set people up for a comfortable retirement. And yet, it would be a mistake to simply hike up the mandatory employee contribution in the hope that this will lead to people saving enough.
Although so far there has been no evidence of significant opt outs at these low contribution levels, there could come a point where that changes.
Instead, we should gradually expect firms to match the five per cent contribution made by their workers.
We should also use behavioural nudges, such as suggesting people save more when they get a pay rise, to encourage people to save at realistic rates, without risking mass opt outs.