Higher contribution rates and compulsory participation should be the future of the UK’s auto-enrolment regime, according to panellists at an industry event.
Speaking at a Pensions Dashboard Week event today (23 September), Lacey said: “I am going to put my hat on the line and say by 2045 that auto-enrolment has been developed and plan membership is compulsory.
“Members have to be in, but employers can still choose their provider.”
This approach would be in line with Australia’s auto-enrolment regime, which requires all employees in scope to pay into a pension and places strict limits on opt outs.
Reflecting on the launch of auto-enrolment in 2012, Lacey said the concept “fell down” when members were allowed to opt out of schemes they were enrolled in.
Looking ahead, the vice president expects the auto-enrolment market to consolidate and contribution rates to be higher.
Increasing contributions
“I am also going to say, [by 2045] we will have accepted the current contribution rate is not sufficiently high,” Lacey added. “So we are going to say employers are now paying 15% of earnings and employees are paying at least 8%.”
Conceding this might be “wishful thinking”, nevertheless Lacey said this approach merited consideration due to the success of Australia’s superannuation model. This would require “tough decisions” and “brave governments,” but to the latter point the vice president said she did not want to see pensions continue to be treated as a political football.
This point was repeated by panellist Karen Bolan, director of retirement communications at Gallagher. Referring to the Labour party’s annual conference and the Budget statement in October, Bolan said she wanted to see steps made to “take politics out of pensions”.
“I would love to see an apolitical pensions minister that stays in post for longer than a government, with a real focus on the long-term,” said Bolan. “Pensions need long-term thinking, and a limited tenure government role does nothing for this.
“If not, we will be met with a social disaster with people funding even their basic needs when they stop working.”
Timms backs higher contributions
Meanwhile, at an event at the Labour Party Conference today, Sir Stephen Timms reiterated his desire for the government to increase the minimum contribution rates for auto-enrolment.
Sir Stephen, a minister within the Department for Work and Pensions and the former chair of the Work and Pensions Select Committee, called for the introduction of a timetable for raising contributions.
Responding to a question from the Society of Pension Professionals, Sir Stephen said: “I am not the pensions minister, and I realise we are living through a cost-of-living crisis, but as I said when I chaired the Work and Pensions Select Committee, I think we have got to have a road map so people can see we are committed to doing this and when.”
Sophia Worringer, deputy policy director at the Centre for Social Justice, added: “This is a huge problem that we can’t just keep kicking down the road.”
Further reading
IFS sets out roadmap to boosting auto-enrolment (16 September 2024)
‘We need a consensus’: Sir Stephen Timms calls for higher contributions (17 May 2024)
WTW urges higher default contribution levels to boost saving (29 April 2024)
