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City grandees have urged Rachel Reeves to tackle the “impending crisis” facing British retirees because of a lack of long-term savings, following warnings the King’s Speech missed an opportunity to raise workplace pension contributions.
In a letter seen by the Financial Times, eight financial services veterans told the chancellor that Britons were not saving enough in workplace schemes to ensure a sufficient retirement pot.
The signatories, who included Peter Harrison, chief executive of Schroders, one of the UK’s largest asset managers, urged Reeves to prioritise lifting “substantially” the rate of long-term savings for workers in “auto-enrolled” pension schemes.
“There is an impending crisis of long-term savings and investment in the UK that must be a priority for the new government,” the letter said.
The signatories also warned of “damaging consequences for our country and society” if the issue was “not urgently addressed” by Sir Keir Starmer’s government.
The grandees’ call comes days after ministers announced the pension schemes bill in the King’s Speech. The government said the legislation was designed to enable more than 15mn people to earn more on their pensions savings.
But absent from it were proposals, backed by unions and industry during the election campaign, to raise the minimum amount that employers and workers who are automatically enrolled into their company schemes must contribute — at present 8 per cent of pensionable salary.
“One key thing missing from this bill is any mention of scaling up automatic enrolment,” said Tom Selby, director of public policy at investment site AJ Bell.
Andy Briggs, chief executive of retirement business Phoenix, said “the single biggest lever we can pull to secure savings adequacy is raising minimum contributions”.
Eligible workers are automatically enrolled into their workplace defined contribution scheme as a result of rules that took effect in 2012. Companies have to contribute at least 3 per cent of pensionable salary to the employee’s retirement pot, while the worker pays at least 5 per cent.
A person involved in drafting the letter said auto-enrolment contributions should increase 1 per cent a year for members and employers so that the minimum gradually rose from 8 per cent to near 15 per cent. By comparison, employers in Australia — which has similar defined contribution schemes — will increase the amount they pay in on behalf of staff to 12 per cent from next year.
“Achieving better retirement incomes for ordinary people should be a core goal of our investment system,” the letter said. “The availability of a growing pool of long-term investment capital is critical for allowing UK businesses of all shapes and sizes to grow and flourish.”
Other signatories included Robert Colthorpe, chair of asset manager Premier Miton, former Abrdn chief Sir Keith Skeoch and Tracy Blackwell, chief executive of Pension Insurance Corporation.
The Labour government estimates the pensions measures set out last week, which would take forward reforms started under previous Conservative administrations, could increase the value of the average earner’s pot by about 9 per cent — or £11,000 — over their career.
The Treasury said: “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.”