UK (Parliament Politics Magazine) – Ex-pensions minister Steve Webb urges the British government to raise the minimum auto-enrolment pension contributions to ensure better retirement outcomes.
As reported by The Guardian, a former minister has urged the government to “think big” on retirement saving, as pressure grows to increase minimum pension contributions.
What did Steve Webb say about minimum pension rates?
Steve Webb, ex-minister, now a partner at LCP, said,
“It’s widely accepted that for many, paying the minimum rate won’t provide a decent retirement.”
He said that under normal economic conditions, workers should pay higher contributions. However, the recent £25bn increase in national insurance costs has made this much tougher for businesses.
Mr Webb asks, “So where’s this money going to come from?” adding, “There’s a lot to be said for a long-term plan for all of this.”
He proposes the government might progressively increase the minimum employer contributions moving forward.
Mr Webb stated,
“I have a feeling something like that is going to have to happen.”
He added it’s time to “think big” about increasing minimum contributions and suggested workplace pensions could be adjusted to help with immediate finances or house purchases.
What did Scottish Widows reveal about retirement risks for defined-contribution savers?
Scottish Widows released a report this month on pension saving and retirement risks.
The study revealed that 35% of savers contributing about 8% in defined contribution plans could struggle to cover essential expenses in retirement.
What did PensionBee say about raising minimum pension contributions?
PensionBee, a specialist in retirement planning, has called for the total minimum pension contribution to rise to 12% of earnings.
It said the government
“must set out a clear plan to gradually increase minimum employer contributions, giving businesses time to adapt while boosting long-term retirement outcomes.”
They added,
“At the same time, higher contributions should go hand in hand with policies that get savers engaged with their pensions earlier in their careers.”
What are the minimum pension contributions under auto-enrolment?
The government requires employees and employers to pay minimum pension contributions under auto-enrolment rules. Analysts warn current pension contributions are insufficient for adequate retirement funding for many.
The set minimum for pension payments is 8% of income, comprising 3% from employers, 4% from workers, and a 1% government tax incentive.
Under current guidelines, pension contributions are calculated on salaries between £6,240 and £50,270, known as the qualifying earnings threshold.
Minimum pensions in the UK
- Minimum Workplace Pension Contributions: Currently set at 8% of qualifying earnings (employers pay 3%, employees 4%, plus 1% tax relief) for auto-enrolment schemes.
- Retirement Income Shortfall: 35% of those saving at the 8% minimum risk not covering basic needs in retirement, per Scottish Widows.
- Average Retirement Income:
- Single pensioner: £13,884/year (below the £14,400 PLSA “minimum” lifestyle benchmark).
- Couples: £29,172/year (vs. £22,400 PLSA minimum).
- State Pension Basics:
- New State Pension (2025/26): £230.25/week (£11,973/year).
- Basic State Pension (pre-2016): £176.45/week.
- Pension Participation: 79% of UK employees are enrolled in workplace pensions, but contributions often cluster at minimum levels.