Increasing minimum pension contributions to 12% could boost savings by £95,530

minimum auto enrolment pensionIncreasing minimum pension contributions under auto-enrolment from 8% to 12% could result in additional contributions of £10 billion a year in the UK, according to research by Phoenix Group and WPI Economics.

The long-term savings and retirement business and economic consultancy’s report Falling behind the curve, which models the cost to employees and the economy of delaying an increase in minimum auto-enrolment pension contributions, also found that for a typical 18-year-old, increasing minimum auto-enrolment contributions to 12% could lead to an additional £95,530 in today’s money terms in their pension pot at state pension age, the equivalent to £64 per week.

Delaying this increase by five years reduces the total additional savings potential by nearly £10,000, a 10-year delay would reduce it by around £22,000, and a 15-year delay would mean potential additional savings are down by £35,000.

The report also stated that every five-year delay to increasing auto enrolment contributions could cost around £2.5 billion in investment into unlisted equities, assuming a 5% allocation to unlisted equities in line with the Mansion House compact. In addition, every five-year delay could cost £11.5 billion in investment in UK equities, assuming a 23% allocation to UK listed equities.

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Andy Curran, chief executive officer of Standard Life, part of Phoenix Group, said: “Millions of UK adults are not saving enough for their future retirement income, so it is crucial we have a plan to support greater pension saving throughout people’s working life. Increasing minimum auto-enrolment contributions is fundamental to addressing this challenge, particularly as many people are unengaged with their pension or have low confidence in their pension knowledge.

“Alongside the benefits for future retirement incomes, there is a wider economic benefit that pension capital can play in driving investment to sustainable and productive assets, ensuring optimal outcomes for savers remain at the centre of investment decisions.”