Any review should also consider the potential impact on employers. A recent report from Phoenix Insights, Phoenix Group’s longevity think-tank, suggested incremental AE minimum increases should only begin if job vacancies are no more than 2 per cent or 3 per cent of total employment.
When increases are made, work must be done to ensure those on very low incomes are not harmed by over-saving; AE could be made more flexible, for example enabling a low-earning employee to opt out of the employee payment while retaining the minimum employer contribution could ease short-term financial pressure while offering people a chance to save at least something for retirement.
It's also now a year since parliament passed the Pensions (Extension of Auto-Enrolment) Act, which when implemented will lower the age of eligibility for AE from 22 to 18 and enable people to save from the first pound of their earnings, and we are yet to see a timeline for implementation.
The earlier people start to save, the more chance they have of benefiting from compound investment growth, and saving from pound number one enables people to benefit from employer contributions even on low incomes.
AE needs to evolve to better address retirement income inadequacy and we hope to see this legislation considered alongside raising minimum contributions in the Pensions Review.
We’ve built a solid foundation, and now is the time to build up.
Gail Izat is managing director for workplace pensions at Standard Life, part of Phoenix Group
