Around a fifth (21 per cent) of those with a workplace pension contribute more than their employer, according to research by the Pensions and Lifetime Savings Association.
Released exclusively to Pensions Age, the research formed part of the association’s Hitting the Target project, which among other ideas called for equal contributions between employers and employees. The survey of 1,500 individuals, aged 18 to state pension age, was conducted in May.
The research found that 36 per cent of employees said their employer matches their contribution, and 26 per cent said their employer pays in more than them. Just over half (55 per cent) of those working believe their employer should be paying more into their pension than at the moment.
The PLSA published its Hitting the Target report in July, and proposed minimum auto-enrolment contribution levels should increase from the 8 per cent of band earnings scheduled to take effect in April 2019, to 12 per cent of an individual’s full salary by 2030, with a 50:50 split between employers and employees.
Currently, under auto-enrolment, employers have to contribute a minimum 37.5 per cent of the total pension contributions. However previously, under defined benefit schemes, it was common for UK employers to pay two-thirds of contributions.
The association acknowledges that asking employers to play a greater role in supporting employees’ pension savings may be challenging for employers. However, PLSA research from 2017 found that 74 per cent of employers support auto-enrolment, which the association believes suggests many would be willing to support improving the level of pension savings.
Achieving a contribution of 12 per cent with a 50:50 split would also require a small increase in the amount employees would be putting towards their pensions, which could be difficult for some but the research found 45 per cent of those with a workplace pension agreed that they could afford to save more towards a pension.
Commenting, PLSA director of policy and research Nigel Peaple said: “While the government’s phased increases will see minimum contributions rise to 8 per cent by 2019, we don’t feel that this rise will be enough in the long term. We believe that the minimum level needs to increase to 12 per cent of salary over the course of the 2020s – with an equal split between employers and employees – if retirees are to be financially secure.”
Someone on average earnings (£27,000) saving for a lifetime at 8 per cent will get a pension of about £14,500 a year while if they save at 12 per cent they will get about £21,000 a year.With the current level of contributions, 51 per cent of savers are unlikely to meet the Pension Commission’s Target Replacement Rate (£19,162 for an average earner in 2017), and for those who only have defined contribution pensions, just 3 per cent of savers are likely to achieve this.
In addition to an increase in contributions, the PLSA is in the process of developing a set of retirement income targets to help savers understand the amount of annual income required to support different sorts of lifestyle in retirement. The PLSA is due to release these targets in early 2019, and hopes to work with the government and the pensions industry to roll them out.
“In our Hitting the Target report we also argue that a simple and widely promoted system of retirement income targets would make it much easier for people to know whether they are on track to live the lifestyle they want in retirement. Together with higher contributions, such a system should help more ensure more savers can live comfortably in retirement,” Peaple stated.