Raise contributions to diffuse pensions ‘timebomb’, government told

The company is the latest to throw its weight behind calls for higher contributions as the industry awaits the outcome of the government’s Pensions Review. 

Chancellor Rachel Reeves previously initiated discussions about increasing pension contributions inspired by the Australian system, but as yet no changes have been made. 

The previous administration also declined to enact measures to extend the reach of auto-enrolment by removing or reducing the wage and age limits. 

“Current contribution rates fall far short of what’s necessary to ensure a comfortable retirement, something which the government was warned about by the Pension Commission over a decade ago.” - Felicia Hjertman, Tillit

Australia currently requires employers to contribute 11.5% into workers’ pensions, with the rate set to increase to 12% from 1 July 2025. 

Meanwhile, the minimum contribution rate in the UK is 8%, and only 3% must come from the employer. 

Felicia Hjertman, chief executive officer and founder of Tillit, said: “It’s deeply frustrating to see the government’s continued inaction on raising the minimum level for employer pension contributions, thereby washing their hands of the collective responsibility to ensure people can afford to retire.  

“Current contribution rates fall far short of what’s necessary to ensure a comfortable retirement, something which the government was warned about by the Pension Commission in Lord Turner’s report over a decade ago. 

“The government should take note to avoid a pensions timebomb.” 

Currently, over 80% of households are falling short of a comfortable retirement. according to Tillit, which maintains that increasing contributions is essential to tackling this crisis. 

Tillit’s call follows many other industry commentators and companies who have called for higher contributions to DC pension pots. 

Last week, research by Hargreaves Lansdown found that almost a third of people do not know how much they should save for their pension. 

The research also found that one fifth of people thought they needed to save between 6% and 10% of their salary yearly to have enough income in retirement. A similar proportion said between 11 to 15% - despite the auto-enrolment minimum sitting at 8%. 

As the government prepares to start the adequacy phase of its Pensions Review next year, some have highlighted that there are a range of factors to consider to improve people’s prospects in retirement.  

These include improving financial education, addressing the pay gaps related to gender and ethnicity, and tackling the UK’s housing crisis. 

Further reading

National insurance hike ‘terrible news’ for pension adequacy efforts (30 October 2024) 

PLSA reports sharp increase in cost of ‘moderate’ retirement (7 February 2024) 

‘Sleepwalking into a crisis’: Savers fear unaffordable retirement (23 July 2024)