Living Pension launch
Employers urged to raise pension contributions
Employers are being encouraged to pay more into employees’ pensions amid growing concern that many will be left in retirement poverty.
Today, the Living Wage Foundation launches a new “Living Pension” standard to tackle low pension saving at events at the Edinburgh offices of Phoenix Group and Herbert Smith Freehills in London.
The Living Pension savings target is 12% of a worker’s annual salary, of which the employer pays in at least 7%. This builds on the current auto-enrolment requirement of 3%.
The launch coincides with new data from the foundation published today showing that more than half of those paying into a pension (56%) believe they will never have enough money to be able to retire and two-thirds (64%) feel they will need to work several years beyond retirement age.
The research also reveals that nearly two in five (37%) are not confident that they are saving enough to meet even basic needs in retirement.
Making matters worse, pension savers are being forced to cut their contributions as the cost-of-living crisis bites. The new Savanta polling found 9% had stopped or reduced their contributions in the last six months, and 8% plan to cut their contributions in the months ahead.
Of those who cut their contributions, 42% blamed rising living costs, among whom 85% said they had seen costs rise most in groceries and utility bills.
The Living Pension is a voluntary savings target for employers who want to help workers, especially those on low pay, build up a pension pot that will provide enough income to meet basic everyday needs in retirement.
Six employers have already signed up to the standard: Phoenix Group; Herbert Smith Freehills; Aviva; Good Things Foundation; Wealthify; and Citizens UK.
Katherine Chapman, director of the Living Wage Foundation, said: “Low pension saving levels are a long-standing issue and our research shows that workers are worrying about an uncertain future. The current cost-of-living crisis is exacerbating the problem.”
Speaking to Daily Business, Andy Curran, chief executive of Standard Life, part of Phoenix Group, said the target is voluntary as no one wants to burden struggling companies with more legally enforceable costs.
He said the 7% represented a doubling of the current level but is still well short of the 12% required to ensure more people were saving enough. He acknowledged that small firms would find it more difficult to accommodate an increase in pension contributions.
“It is why we think this has to be a journey,” he said. “Employers should see it as offering a significant benefit for employees.”
He said the introduction of auto-enrolment had been a good thing , drawing in 10m workers. “But the weakness is that it produces a false level of comfort. It is good that they are doing something, but it is not enough.”
Mubin Haq, chief executive of Abrdn financial fairness trust, agreed. “Good progress has been made on pensions in recent years, especially the introduction of auto-enrolment and the triple-lock.
“Some might think job done, but we are storing up future problems as millions are not saving enough towards their retirement: four in five workers on defined contribution schemes are falling short of what they need to have a decent standard of living in old age. A living pension provides employers with a model to do the right thing and ensure their workforce are not facing hardship in the future.”
Danny Harmer, chief people officer at Aviva, said: “By adopting the Living Pension and paying the Living Wage, organisations can help their people balance saving for tomorrow with living for today.”
What about the Government’s auto enrolment pension?
All employers must provide a workplace pension scheme. This is called ‘automatic enrolment’. Employers must automatically enrol employees into a pension scheme and make contributions to their pension if they are classed as a ‘worker’; they are aged 22 to state pension age; they earn at least £10,000 per year and they ordinarily work in the UK. There are some exclusions as outlined in Government guidance.
In most automatic enrolment schemes, contributions are based on ‘Qualifying Earnings’, which is total earnings between £6,240 and £50,270 a year before tax. Employers are required to pay 3% of Qualifying Earnings and Employees are required to pay 5% (which includes 1% tax relief). Employees can choose to opt out of automatic enrolment but if they meet the thresholds outlined above, they must be re-enrolled again at least every three years.
Under automatic enrolment, a Living Wage employee working 37.5 hours per week would have £1201 going into their pension each year (with £450 coming from the employer), where as the Living Pension would be £2,550 (with £1,488 coming from the employer).
The Living Wage
The UK Living Wage for outside of London is £10.90 per hour. The London Living Wage is £11.95 per hour. These figures are calculated annually by the Resolution Foundation and overseen by the Living Wage Commission, based on the best available evidence on living standards in the UK and in London.