Pension Crisis Looms as National Insurance Hike Takes Its Toll
The UK is hurtling towards a retirement savings crisis, warns the CEO of a leading pension provider, as the Chancellor’s recent National Insurance (NI) hike puts pressure on businesses to cut back on pension contributions.
Higher Earners May Miss Out on Pension Contributions
Jamie Fiveash, chief executive of Smart Pension, argues that the increased employer NI contributions will force companies to reduce pension contributions, particularly for higher earners. This comes as a blow to those relying on their employers to contribute to their pension pots. The Office for Budget Responsibility estimates that 80% of the cost of this tax rise will be passed onto workers, contradicting Labour’s manifesto promise not to increase taxes “on working people”.
Retirement Savings Shortfall Worsens
Britain already faces a significant retirement savings gap, with only one in seven workers making large enough pension contributions to maintain their living standards into retirement. The existing auto-enrolment system requires minimum pension contributions worth 8% of salaries, comprising a 5% employee contribution and a minimum 3% employer contribution. However, businesses may now opt to cut back on these contributions to absorb the blow from the NI rise, exacerbating the savings shortfall.
Reform Delayed, Crisis Looms
The pensions industry has long advocated for increasing the minimum 8% threshold to 12%. However, Fiveash warns that this reform may now be delayed due to the NI hike, pushing the country further towards a crisis. “We need to get to 12% and the longer we delay that, the worse the situation becomes,” he emphasized.
Businesses Face Triple Whammy
On top of the NI increase, businesses must also contend with a 6.7% increase in the National Living Wage and the costs associated with Labour’s Employment Rights Bill, which could reach £4.5bn. This triple whammy may force companies to make difficult choices, including reducing pension contributions, to stay afloat.
Government Response Falls Short
A government spokesman defended the NI hike, citing the need to “fix the foundations of the country” and restore economic stability. However, the Chancellor’s landmark pensions review has yet to provide a clear timetable for increasing minimum pension contributions, leaving many wondering if the government is doing enough to address the looming retirement crisis.
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