“This leads to a fall of 8.7 per cent in liquid asset resilience and 4 per cent fall in net financial assets by 2029 for the automatic enrolment expansion scenario. The decline in short term resilience across these three indicators is even higher in the 12 per cent contribution scenario.”
A similar effect is evidenced when looking at the impact between age groups. Millennial and ‘Gen Z’ households “see an improvement in their pension value of 5.7 per cent compared to 3.5 per cent for the nation overall under automatic enrolment expansion[...] and 14.5 per cent compared to 9.3 per cent under an increase to 12 per cent,” the report explained.
However, this has a significant trade-off impacting all indicators of short-term resilience, but particularly potential house-buying, as the overall fall in net financial assets makes it even more difficult to save for a deposit.
Don’t be hasty
Rather than rushing into the reforms now, while the cost of living crisis is acute, Hargreaves Lansdown recommends a more cautious approach to timetabling, setting the most consequential reforms back until the crisis has abated.
This, it argued, means the reforms should not be implemented before 2025.
Rather than making mandatory increases to minimum contributions, it suggested the government should encourage people to increase their contributions voluntarily as and when they are able.
“The potential to pay more into a pension and get a matching contribution from the employer could be an attractive incentive. Previous[...] analysis shows as many as six in ten people could be encouraged to boost their contribution if such an arrangement were available, so we would welcome a further study to see the potential impact of these arrangements,” it continued.
“Such arrangements could be popular as people only increase contributions as they need to, and employer contribution increases are targeted towards those who value them.”
Hargreaves Lansdown senior pensions and retirement analyst Helen Morrissey said: “Boosting pension saving is hugely important but cannot be tackled in a vacuum. Unless changes are timed carefully, we risk placing demands on people to save for tomorrow that risk undermining their financial position today.
“If people are struggling with their day-to-day costs, then we risk any further boost in pension saving leading to people saving less and even building up debt.”
She acknowledged that reforming and expanding auto-enrolment could potentially be of benefit, but reiterated that it should not proceed without regard to the challenges people are facing today.
“People on lower incomes are particularly affected as are younger people who may find they can build bigger pensions but struggle to get on the housing ladder – we think a more nuanced approach needs to be taken.”
Lang Cat’s director of public affairs Tom McPhail welcomed the report’s nuanced take, pointing out that, “to a man with a hammer, every problem looks like a nail”.
