Pension Experts Urge 12 Percent Contributions for UK Workers

Millions of UK workers could benefit from higher retirement savings if pension contribution rates increase under reforms proposed by the Standard Life Centre for the Future of Retirement. The policy think tank is urging the government to raise the combined minimum contribution from 8% to 12%, while also expanding automatic enrolment to cover more workers.

The proposed increase would add 4 percentage points to the current minimum contribution rate. Centre director Catherine Foot said the existing system had helped more people save, but gaps in coverage and insufficient contributions continued to threaten retirement income adequacy.

Under current rules, employers must automatically enrol eligible workers aged 22 to state pension age who earn at least £10,000 annually into a workplace pension scheme. Contributions are calculated only on earnings above £6,240, and the minimum combined contribution is 8% of qualifying salary, typically split between 5% from the employee and 3% from the employer.

Foot said automatic enrolment had significantly expanded access to workplace retirement savings but had not reached everyone who could benefit.

"Automatic enrolment has transformed pension saving, helping millions more people build up money for retirement. But too many people are still missing out, while others aren't saving enough to enjoy the retirement they hope for." said Catherine Foot, director of the Standard Life Centre for the Future of Retirement.

Legislation approved in 2023 provides for lowering the automatic enrolment age to 18 and removing the £6,240 earnings threshold. Under those changes, eligible workers earning more than £10,000 annually would make pension contributions from their first £1 of earnings. However, the measures have not yet been implemented.

Foot said the changes could particularly help younger employees and people on lower incomes by giving them more time to accumulate retirement savings.

"Extending automatic enrolment from the age of 18 and ensuring pension contributions are calculated from the first £1 of earnings could make a real difference, particularly for those on lower incomes or starting out in their careers. The earlier people start saving, the more time they have to build their pension." said Catherine Foot.

The think tank also wants policymakers to encourage workers to look beyond minimum contribution levels. It argues that expanding access alone may not provide enough income for the retirement people expect.

"It's not just about getting people into the system. We also need to help them understand the value of saving and that remaining at minimum contribution levels may not deliver the retirement they expect. Over time, there is a strong case for moving towards a combined contribution rate of 12 per cent, while ensuring contributions remain affordable and encouraging greater engagement with pensions." said Catherine Foot.

The UK Pensions Commission is separately examining the adequacy and long-term sustainability of retirement provision, including the state pension and private pension savings. Its work is intended to inform government decisions on reforms affecting current and future retirees.

An interim report from the commission said automatic enrolment had increased workplace pension saving but had not produced sufficient savings for low- and middle-income earners. The report also noted substantial differences in contribution levels and said the 8% minimum had increasingly become a standard contribution rate rather than a minimum.

The commission is expected to submit its final report and recommendations to the government in February 2027.