15 million working-age people are not saving enough for sufficient retirement income, with low-earners most likely to be among them. But both they and small businesses feel the most pain from contribution increases.
We can submit evidence until 16.00 on 26 October 2026 but I and Pensions Mutual do not think it takes a month to answer sensible questions which we all should have views on.
You can read the call for evidence for more detail about the inquiry
Hear are our answers
- To what extent do minimum AE contributions need to increase?
It would be good if everyone had contributions into DC or CDC at 12% of total earnings, but this cannot be mandated or even set as the AE minimum.
Too much has been written about adequacy for us to add numerical formulae which appear meaningful, but we see much can be done with the benefit system that cannot be achieved by funded pensions. People do not choose to be on benefits, but we should not condemn those who get mean-tested benefits as a burden
- How should any contribution increase be shared between employers and workers?
Any contributions from employers replace wages. There is sufficient leniency within the 2029 salary sacrifice proposals to make employee contribution up to £167pm and will mean that many low paid earners will benefit from an election to have all contributions up to £2,000 pa made by the employer. We expect for employer HR and payroll teams to work this out!
- What are the trade-offs for employers and workers between current needs and long-term savings? How might policy design help balance them?
For 40 years we have had real growth in residential property prices, but now the prices of houses and especially flats in some parts of the country are falling. If people cease to rely in the mantra that the house is the pension, then people will consider long-term savings as more important for a wage in retirement. The pension dashboard will display savings as income, and we think that the Government is doing well to ensure from 2029 that DC defaults will include a retirement income to last as long as the saver. We consider CDC as another reason for employers and employees considering contributions as deferred pay and attach greater importance to them.
- What would be an appropriate timetable for any increases?
We see 2029 as an important year when retirement guidance and Retirement CDC arrive. CDC will be well established and salary sacrifice will be being restricted. This looks like “big bang” for workplace pensions
- Is there also a case for reducing or removing the lower earnings limit on contributions and/or the earnings trigger for auto-enrolment?
We think that the lower earnings limit is successful in keeping many who should not be saving either because of affordability or because of the practicalities of keeping a record, paying an unnecessary levy and dealing with claims. We would keep it in place.
- To what extent are employers and the public persuaded of the need for contributions to increase?
Few people consciously believe that having a payroll deduction is enough to meet their aspirations for later life. Most people will pay more if that is what auto-enrolment requires them to do. But there is a point for many people on low income when the benefit system becomes more attractive than self-sufficiency and for these people higher contributions will not attract them back into AE.
The majority of our 1.4m employers see AE as an extension of National insurance and have little interest in workplace pensions or what they produce. They have no fiduciary duty to their staff and until they and their staff are convinced that what they are contributing is both value for money and a form of deferred pay they will continue to see AE as a part of taxation.
Henry Tapper
CEO of Pensions Mutual, launching an aspiring workplace CDC scheme.
20th September 2026.
“To what extent do minimum AE contributions need to increase?
It would be good if everyone had contributions into DC or CDC at 12% of total earnings, but this cannot be mandated or even set as the AE minimum.”
I disagree. Set the default at 6% of pay upon first joining an organization, then, with every annual salary review, raise the contribution percentage by 1%.
But, more importantly, morph the DC/CDC into a “lifetime financial instrument”, one that provides “liquidity without leakage along the way to and throughout retirement.” That is, you should be able to treat the assets in your account as the “Bank of Henry” – such that you could borrow from your account, from the “future Henry”, with a commitment to repay the money, rebuild the account for a future, greater need.
Here is how it would work:
Contribute to the account
Get any employer financial support
Invest
Accumulate earnings
Borrow (DC/CDC loan) to meet a short term need
Reallocate assets (as the DC/CDC loan would become a fixed income asset in the plan, earning the stated loan interest rate),
Continue contributing while repaying the loan
Rebuilding the account for a future, greater need
Repeat as necessary up to and throughout retirement.
This is the process many among America’s middle class have used to build household wealth.
Keep in mind that this liquidity stratege is valuable for two reasons:
First, individuals will be less likely to limit their contributions to the amount they believe they can afford to earmark for a distant, uncertain perhaps improbable retirement, and
Second, such a structure will likely improve both household wealth AND retirement preparation at the same time because:
(a) Most individuals who will use the DC/CDC loan process will have decided to source it there because it offers a better deal than what they may have access to from a commercial source (otherwise, they would borrow from the commercial source), improving household wealth from lower loan payments, and
(b) Most fixed income investments have had lower returns over the past 18 or so years than the interest rate that would be charged on the DC/CDC loan – improving retirement preparation.
So, while the plan loan interest rate would be less than the rate from a commercial source, it will often exceed the interest rate on other fixed income investments offered by the DC/CDC.
“What are the trade-offs for employers and workers between current needs and long-term savings? How might policy design help balance them?”
See above.
“What would be an appropriate timetable for any increases?
We see 2029 as an important year when retirement guidance and Retirement CDC arrive. CDC will be well established and salary sacrifice will be being restricted. This looks like “big bang” for workplace pensions.”
Starting today, 1% increase (including from 0% to 1%) on the next and every future salary increase.
“Is there also a case for reducing or removing the lower earnings limit on contributions and/or the earnings trigger for auto-enrolment?
We think that the lower earnings limit is successful in keeping many who should not be saving either because of affordability or because of the practicalities of keeping a record, paying an unnecessary levy and dealing with claims. We would keep it in place.”
Disagree, so long as there is liquidity. The default investment should have a minimal asset management fee. The annual account maintenance fee should be minimal as well.
“To what extent are employers and the public persuaded of the need for contributions to increase?
Few people consciously believe that having a payroll deduction is enough to meet their aspirations for later life. Most people will pay more if that is what auto-enrolment requires them to do. But there is a point for many people on low income when the benefit system becomes more attractive than self-sufficiency and for these people higher contributions will not attract them back into AE.
The majority of our 1.4m employers see AE as an extension of National insurance and have little interest in workplace pensions or what they produce. They have no fiduciary duty to their staff and until they and their staff are convinced that what they are contributing is both value for money and a form of deferred pay they will continue to see AE as a part of taxation.”
Not if the “right” kind of liquidity is available, and the “wrong” kind of liquidity, liquidity that is almost always pre-retirement leakage, is curtailed.
See:
https://401kspecialistmag.com/congress-did-you-ever-have-to-make-up-your-mind/
https://401kspecialistmag.com/is-congress-mad-are-you/
http://www.nber.org/system/files/working_papers/w32828/w32828.pdf
While there is good evidence for automatic escalation in the US, it is not as powerful as its advocates sometimes imply?
Recent NBER research found that the long-run effect of automatic escalation was considerably smaller than the headline policy suggests: roughly 0.3% of income from default escalation in the plans studied, with many employees opting out.
A flexible ISA in the UK, however, already embodies much of the “Bank of Henry” principle.
If you put £10,000 into a flexible ISA, withdraw £3,000, and then replace the £3,000 in the same tax year, the replacement doesn’t use up another £3,000 of your ISA allowance. That flexibility can also apply to money accumulated in earlier tax years, subject to the ISA rules and the requirement to replace it in the same account.
The crucial difference, however, is that the ISA withdrawal is not a loan. You don’t have a contractual debt to the ISA. You have simply withdrawn your own capital and retained the ability to replace it, or not.
And ISAs have no employer contribution and no compulsion.
The proposed workplace account would have both.
Thanks.
“The crucial difference, however, is that the ISA withdrawal is not a loan.”
As the two article links confirm, pre-retirement withdrawals are the “wrong” kind of liquidity – because they are seldom repaid.
With respect to NBER studies, all I can say is that America now has 120+MM DC accounts, across 700,000+ employer-sponsored DC plans, with $50+ Trillion US in retirement assets (DB, DC, IRA), up from $7 Trillion in 1995, $14 Trillion in 2005. Much of the dramatic growth in the number of accounts and assets over the past 20 years was the result of clarification/confirmation of automatic features as part of the Pension Protection Act of 2006 – as American has seen a dramatic decline in the number of DB plans where active workers are accruing a benefit. Similarly, most of the growth of IRA assets occurred via rollovers from employer sponsored plans.
Keep in mind that every one of the 67 MM Baby Boomers is now 62+ years of age, and, along with 19 MM Silents, most are retired and taking distributions.