The Labour Party government has refused to bow to pressure to raise the minimum pension contribution rate, a decision that could force 700,000 people into pension poverty. The current rule, which requires most employees to contribute at least five per cent of their wage and employers to add a minimum of three per cent, has been criticized as too low.
A report from Scottish Widows estimates that raising the contribution rate could benefit 10 million workers and reduce the number unable to meet basic needs in retirement from 24 per cent to 17 per cent. Tom Selby of AJ Bell warned that people are "sleepwalking towards retirement poverty" under the current system, adding that many may assume contributions are set at the right level when they are not.
Pete Glancy of Scottish Widows noted that Britain's aging population puts greater pressure on the balance between workers and retirees, and raising contributions could improve living standards and reduce poverty risk. However, Labour cabinet member and pensions minister Torsten Bell confirmed there will be no changes during this parliament.
A Department for Work and Pensions spokesman stated that the Pensions Commission is examining how to ensure secure retirements, and the newly passed Pension Schemes Act will bring major reform, benefiting millions of workers by up to £29,000 by retirement. The government also reiterated its commitment to the triple lock, which will see yearly state pension rise by up to £2,100 for millions of pensioners.
