The decision could be “hugely detrimental” to people’s futures, an expert has said.
Retirees set to lose £35,000 each after Rachel Reeves decision (Image: Getty)
Millions of retirees could lose up to £35,000 from their savings after Chancellor Rachel Reeves indefinitely postponed the second phase of a key pensions review.
The delay follows concerns about further financial strain on businesses, particularly after the backlash over the Budget’s £25billion national insurance contributions bill for employers.
Pensions Minister Emma Reynolds had pledged to launch a review on the adequacy of retirement savings by the end of the year, but this has now been put on hold with no new timeline provided.
Under current auto-enrolment rules, employees must contribute a minimum of 8% of their qualifying earnings to workplace pensions each year, with employers required to contribute at least 3%.
However, many experts argue that these contribution levels fall short of ensuring a sufficient retirement income.
Rachel Reeves indefinitely postponed the second phase of a key pensions review. (Image: Getty)
Analysis by Phoenix Group revealed that raising the minimum auto-enrolment contributions from 8% to 12% could boost the pension pot of a typical 18-year-old by nearly £96,000 (in today’s money) by the time they reach state pension
However, delaying this increase by five years would reduce the additional savings potential by nearly £10,000.
A 10-year delay would lower it by around £22,000, and a 15-year delay would result in a loss of approximately £35,000 in potential savings.
Catherine Foot, director of hoenix Insights said: “Hitting pause on the retirement adequacy review could be hugely detrimental to people’s financial future. In the next five years, the majority of defined contribution pension savers will enter retirement with less income than they expect or need, and this will worsen to a peak in the early 2040s.
“There are clearly some valid concerns around what increases to auto-enrolment contributions might mean for businesses, but that shouldn’t stop analysis and consensus-building on how and when we address the retirement crisis unfolding before our eyes.”
She added: “Increasing minimum auto-enrolment contributions is one of the biggest levers to tackle undersaving and we cannot afford to delay setting out a plan to incrementally raise contributions.”
“The adequacy review is a golden opportunity to look at the retirement landscape as a whole and prevent serious problems for individuals and the state in years to come. With the impending retirement crisis about to unfold, the review should not be kicked into the long grass.”
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.”
