Exploring the implications of higher pension contributions
Royal London, the UK’s largest life, pensions and investment mutual commissioned Oxford Economics to explore the impact of higher contributions to workplace pensions.
The report evaluates potential reforms that could be implemented to increase minimum contributions, and the effect this may have for households and the wider economy, both short and long term.
Despite the success of automatic enrolment, doubling take-up in the private sector in just a few years, analysis from Oxford Economics indicates only 40% of households with a defined contribution (DC) scheme will have the savings needed for a ‘moderate’ standard of living in retirement by 2040.
Jamie Jenkins, Director of Policy at Royal London, said:
"Automatic enrolment has undoubtedly been a huge policy success, reversing the decline in workplace retirement saving that started almost half a century ago. However, it remains unfinished business, with contribution rates at a level that will still leave many people unable to afford the standard of living they aspire to in retirement.
"People and businesses are facing many financial pressures at the moment and now isn’t the right time to increase contributions, but any reforms are likely to take many years to implement, so we should start planning now. Failure to do so could lead to a much bigger cost-of-living crisis in the decades ahead as today’s younger workers reach retirement."
Henry Worthington, Director of Economic Consulting at Oxford Economics, added:
"Our latest analysis finds that many households fail to save adequately for retirement and that higher pension contributions can improve the adequacy of pension savings. However, we also show that poorer households may find it challenging to afford higher pension contributions ― an important consideration for any potential policy reform.
"In addition, the analysis highlights the potential boost to economic growth from higher pension contributions. By 2040, UK GDP could be £0.4 to £7.4 billion higher, compared to our baseline."
Notes to editor
Exploring the Implications of Higher Pension Contributions in the UK was published today, in conjunction with our report partners, Oxford Economics. Download the report to learn more.
Watch Jamie Jenkins, our Director of Policy, comment on the report.
For further information please contact:
Patricia Corrigan, PR Manager
About Royal London
Royal London is the largest mutual life, pensions and investment company in the UK, and in the top 25 mutuals globally, with assets under management of £162 billion, 8.6 million policies in force and over 4,200 employees. Figures quoted are as at 31 December 2023. Learn more at royallondon.com.
About Oxford Economics
Oxford Economics is the world's foremost independent economic advisory firm. Covering over 200 countries, over 100 industrial sectors and 8,000 cities and regions, we provide insights and solutions that enable clients to make intelligent and responsible business decisions faster in an increasingly complex and uncertain world. For more information, visit https://www.oxfordeconomics.com/.
