PLSA IC 18: AE minimum contributions could be extended to 12% in early 2020s

Written by Talya Misiri

The auto-enrolment minimum contribution levels could be extended to 12 per cent in the early 2020s, the Pensions and Lifetime Savings Association has predicted.

Speaking at the PLSA’s Investment Conference, Thursday 8 March, PLSA policy lead DC Tim Gosling suggested that following the contribution rise to 8 per cent in April next year, the Association’s call for contributions to continue to increase to 12 per cent could be implemented in the early 2020s.

With contributions set to rise to 5 per cent this April and 8 per cent the following year, Gosling noted that the cost of additional contributions (rises) will be just over £40 a month for a median earner from this year or just over £10 per month for someone on £12,500.

Also speaking in the session, RBS HR director reward, pensions and benefits Carol Young looked at what the industry must do to ensure the savings appetite continues following the upcoming contribution rises. "Engagement only matters to the extent that it improves member outcomes," she stated.

Young recommended that schemes should look to: providing analytics, not just performance updates, identify "high value" engagement points - to personalise communications with members and to link this to scheme design.

Looking further at the auto-enrolment climate beyond the increases, Young explained that with more wealth going in to savings pots, schemes may face greater member opt-outs and could potentially see the abandonment of multiple small pots. To tackle this, more trust in the industry is required, she said.

At the other end of the process, if members do remain opted-in until retirement and resultantly accumulate larger pension pots, providers and members alike will also be faced with greater costs and charges and more complex transitions and switching, Young added.

Schemes should "only increase costs if it helps promote better outcomes," she suggested.
Ultimately, as auto-enrolment schemes begins its next steps, schemes must work to "get the house in order" on costs, value and transparency, it was noted. "If the industry keeps to its aim of improving outcomes for members, trust and engagement should also increase," Young concluded

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