Attention is now turning to whether statutory minimum contribution rates, currently set at 8% of band earnings (including tax relief) are sufficient. As far back as 2005, The Pensions Commission thought that 16% of band earnings was the minimum required to reach a target replacement rate of two-thirds of pre-retirement earnings for a minimum earner. 8% was to come from AE with the other half coming from additional savings.
There is a growing consensus that an increase in minimum contributions would lead to an improvement in saver outcomes. However, little work has been done to date to explore what savers think of current levels, or if savers are even aware they’re expected to save more? Can they accurately assess how much they will need to have saved for a ‘moderate’ or ‘comfortable’ lifestyle? And what do they feel the appropriate response from the government and pensions industry would be?
Our research, which involved talking to people aged 22-55, shows that millions of savers are making the minimum contribution to their workplace pension while a significant proportion don’t have significant savings.