Fresh calls for the government to raise the minimum auto enrolment (AE) contributions that employers need to pay have come from investment platform provider Tillit.
The call follows the government announcement that the UK would move to a “pension megafunds” system by consolidating defined contribution schemes (DC) and pooling assets from the 86 separate Local Government Pension Scheme authorities.
The changes are modelled on pension arrangements in Australia and Canada, where funds use their large size to invest in assets that have higher growth potential. This helps boost fund members’ savings and could unlock access to £80 billion of investment for new businesses and infrastructure as well as potentially bumping up individual’s DC pots by £11,000 on average.
Tillit said that because the UK reforms are based on the Australian system, the UK’s level of contributions needs to mirror Australia’s higher contributions too.
In Australia employers are required to contribute a minimum of 11.5 percent of employees’ pay into a pension. By contrast the minimum contribution rate in the UK is 8 percent, with just 3 percent coming from the employer.
Felicia Hjertman, founder and CEO of Tillit, said: “It’s deeply frustrating to see the government’s continued inaction on raising the minimum level for employer pension contributions.
“At Tillit, our number one priority is to help people take control of their financial future, and that is why we have launched auto-escalation as a core feature of the Tillit Pension. The government should take note to avoid a pensions timebomb.”
