Companies need to boost employee pensions says IFS
Approximately 30 per cent to 40 per cent of private sector employees will have individual incomes in retirement that fall short of standard benchmarks, the IFS said.
The Institute for Fiscal Studies (IFS) said there is a “strong case” for companies to pay into their employees’ pension pots even if the employees do not pay in themselves.
The suggestion came in a new report published today. The report calls for a range of reforms to pension contributions to support the millions of people who are likely to have inadequate retirement savings.
The IFS said that approximately 30 per cent to 40 per cent of private sector employees—around 5m workers—will have individual incomes in retirement that fall short of standard retirement requirements.
“Too many private sector employees appear on course to end up on a low – or disappointing – retirement income,” Laurence O’Brien, a research economist at the think tank said.
Overall 22 per cent of private sector employees either opt out of their pension scheme or are not enrolled due to their earnings being too low.
Even for those who opt-out, the IFS said they should still receive an employer contribution worth three per cent of total pay.
Mubin Haq, chief executive of the abrdn Financial Fairness Trust, said: “This would particularly benefit women, those working part-time, young adults and the low-paid”.
Additionally, the IFS argued that the age range targeted by automatic enrolment should be expanded to 16-74 from its current range of 22 to the state pension age.
The IFS argued these would be more effective and targeted reforms than increasing the level of auto-enrolment to 12 per cent, a move which has been suggested by a number of different experts.
The danger of increasing pension contributions to 12 per cent would be that it causes relatively big falls in take-home pay, particularly for low-paid workers.
Rather than increasing the default minimum across the board, the IFS suggested it should be increased for the portion of earnings above £35,000.
David Sturrock, a senior research economist at IFS, said this would “focus the encouragement of higher contributions on periods of life when people have average, or higher, earnings”.
The IFS said its package of reforms would boost retirement incomes by between 12 per cent and 16 per cent for those likely to have low and middle incomes.
