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Britains’ Retirees Face ‘Impending Crisis’ Due to Lack of Long-Term Savings

The city grandees, consisting of eight financial services veterans, have urged Chancellor Rachel Reeves to tackle the "impending crisis" facing British retirees due to a lack of long-term savings. According to a letter seen by the Financial Times, these financial experts warn that Britons are not saving enough in workplace schemes to ensure a sufficient retirement pot.

Lack of Savings Puts Britain at Risk

The letter, signed by Peter Harrison, CEO of Schroders, and other prominent financial leaders, highlights the importance of lifting "substantially" the rate of long-term savings for workers in auto-enrolled pension schemes. The signatories emphasized that there is an "impending crisis of long-term savings and investment in the UK that must be a priority for the new government."

Ministerial Omission Criticized

The government’s pension schemes bill, announced in the King’s Speech, was seen as a missed opportunity to raise workplace pension contributions. Absent from the bill were proposals to increase the minimum amount that employers and workers who are automatically enrolled into their company schemes must contribute – currently 8 per cent of pensionable salary.

Raising Minimum Contributions is Key

Industry experts agree that increasing the minimum contributions is crucial to ensuring better retirement incomes. Tom Selby, Director of Public Policy at AJ Bell, noted, "One key thing missing from this bill is any mention of scaling up automatic enrolment." Andy Briggs, CEO of Retirement Business Phoenix, added, "The single biggest lever we can pull to secure savings adequacy is raising minimum contributions."

Australian Example

In comparison, employers in Australia will increase their contributions to 12 per cent from next year. A person involved in drafting the letter suggested increasing auto-enrolment contributions by 1 per cent annually, eventually raising the minimum from 8 per cent to near 15 per cent.

Growing Long-Term Investment is Crucial

The signatories emphasized the importance of a growing pool of long-term investment capital, critical for allowing UK businesses to grow and flourish. Achieving better retirement incomes for ordinary people should be a core goal of the UK’s investment system, the letter stated.

Labour Government’s Estimate

The Labour government estimates that the proposed pensions measures could increase the value of the average earner’s pot by about 9 per cent – or £11,000 – over their career.

Treasury’s Response

In response to the letter, the Treasury stated, "Delivering economic growth is the number one mission of this new government. That’s why we will act to increase investment from pension funds in UK markets so that businesses of all sizes are able to access the finance they need to expand and scale-up, and to deliver greater returns to pension savers."

Conclusion

The warning signs are clear: British retirees face an "impending crisis" due to a lack of long-term savings. As the government navigates its pension schemes bill, it is essential that policymakers prioritize raising the minimum contributions and increasing long-term savings to ensure a secure retirement for generations to come.

FAQs

Q: What is the current minimum contribution rate for auto-enrolled pension schemes in the UK?

A: The current minimum contribution rate is 8 per cent of pensionable salary, with employers contributing at least 3 per cent and employees contributing at least 5 per cent.

Q: How does the Australian example compare?

A: Employers in Australia will increase their contributions to 12 per cent from next year.

Q: What are the proposed increases to auto-enrolment contributions?

A: Some experts suggest increasing auto-enrolment contributions by 1 per cent annually, eventually raising the minimum from 8 per cent to near 15 per cent.

Q: How does the government plan to address the issue?

A: The government has stated its intention to increase investment from pension funds in UK markets, allowing businesses to access the finance they need to expand and scale-up, and deliver greater returns to pension savers.

Author: www.ft.com

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