Urgent warning over poverty pensions after Chancellor reform delay | Personal Finance | Finance

Millions of workers have been warned they risk poverty in old age without boosting pension contributions.

The warning follows a decision by the Chancellor, Rachel Reeves, to push back a review and reforms of workplace pensions.

Currently, under auto-enrolment rules, staff must pay at least 8 percent of qualifying earnings into their workplace pension each year, at least 3 per cent of which must come from employers’ contributions.

A government review was widely expected to increase this figure to around 12 percent based on a requirement for employers to significantly increase their contributions to staff pensions.

However, the Chancellor has pushed back the review on the basis it would heap billions of pounds of extra costs onto the shoulders of employers, who have been loudly complaining about the impact of increases in National Insurance and the minimum wage.

The net effect of pushing back the review means that, unless workers make their own decisions to increase pension contributions, they risk having a relatively low private pension income in old age so making it difficult to have a decent standard of living.

Pensions minister Emma Reynolds had promised to launch a review looking at the adequacy of retirement savings before the end of the year, but this has now been delayed indefinitely.

Earlier this year Phoenix Group, the UK’s largest retirement savings business, projected that raising the minimum auto-enrolment level to 12 percent would result in an additional £10bn in annual pension contributions, shared between employees and employers.

The Financial Times has revealed that the Department of Work and Pensions (DWP) will not launch the second phase of its pensions review this year, with people briefed on the issue saying the Chancellor has blocked the move.

It quoted a government source as saying: “Rachel is very aware of the fact that business is facing more tax and she is serious about ensuring that new burdens are not placed on business,.”

Sir Steve Webb, former pensions minister and a consultant at LCP, said the delay was “deeply depressing” as it could result in “yet more wasted years”.

He complained: “The Budget was the death knell for the prospect of any serious progress on pensions adequacy.”

When the government announced its pensions review in July, it said it would “consider further steps to improve pension outcomes and increase investment in UK markets, including assessing retirement adequacy”.

Pension experts are concerned that if the delays drag on, that could compromise the retirement prospects of millions of savers.

Research from the Institute for Fiscal Studies this year found that 30 to 40 percent of savers in defined contribution schemes are on course to have retirement incomes that fall below the minimum retirement living standard set out by the Pensions and Lifetime Savings Association trade body.

Zoe Alexander, director of policy and advocacy at the PLSA, said: “It feels to us that there’s not a moment to lose in terms of having this debate.”

The PLSA has called for the government to gradually increase minimum auto-enrolment contributions to around 12 per cent of an individual’s salary. Phoenix also said that a 15-year delay in implementing this increase could result in a typical 18-year-old losing approximately £35,000 in retirement savings.

The government insists that the review of pension contributions has not been kicked into the long grass, however there is no new date on when it might be launched.

A DWP spokesperson said: “We are determined to ensure that tomorrow’s pensioners are supported, which is why the government announced the landmark two-stage pensions review days after coming into office. Government will set out more details on the second phase in due course.”