Actuaries recommend ‘saving for tomorrow’ though private pensions

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PENSION savings being made through workplace defined contribution schemes have largely flatlined over the last decade, according to a survey carried out by the Association of Consulting Actuaries (ACA).

According to the ACA study, the average rates of contribution are set to fall over the next few years because of low initial auto-enrolment contributions.

However, this latest study also discovered that about six out of 10 employers supported the idea of “auto-escalation schemes”, where pension scheme members are encouraged to increase their rate of contributions in the future, often in line with increases in earnings.

The ACA Pension Trends survey received responses from 308 employers with more than 430 pension schemes.

The study found that eight out of 10 smaller employers had not yet budgeted for the likely increase in costs arising from auto-enrolment.

Employer contributions into defined contribution pension schemes across the ACA sample are averaging between 4.5 per cent and seven per cent of earnings as a whole.

Employee contributions hover between four per cent and 4.5 per cent of earnings, with employees of larger firms typically contributing above this figure, and those of smaller employers below.

Andrew Vaughan, the ACA chairman, said: “With most employers seemingly auto-enrolling at the minimum level of contributions, we can expect average contributions to decline over the next few years before climbing in 2018, when the minimum of eight per cent of qualifying earnings will be required in all firms.

“Auto-enrolment on its own isn’t enough. That is why we support the ‘defined ambition’ agenda and the survey is also encouraging in showing employers’ support for auto-escalation schemes.

“In our survey report, we explore the virtues of a ‘save more tomorrow’ initiative, which has worked in the US and is worthy of consideration as a means of encouraging higher pension contributions over the years ahead as the economy grows – increased contributions that are essential as lifetimes in retirement extend.

Mr Vaughan added: “And with the state pension age moving towards 70 for today’s younger employees, the added value of higher private pension savings is becoming clear.

“It is certainly time to save for tomorrow.”

The ACA has 1,750 members drawn from more than 75 firms.