Daniela Silcock: Can we better support those struggling to pay pension contributions?

It has been a difficult few years. The economic fallout of Brexit, followed swiftly by the Covid-19 pandemic has left a lot of people who were already on low incomes struggling to make ends meet. Recent cost-of-living increases arising from global fuel and food shortages and exacerbated by the war in Ukraine will ratchet up the pressure on these households, who are likely to be searching for potential ways of cutting back on expenses.

In times of financial crisis, saving for pensions may seem like less of a priority. This is not an irrational attitude.  People who do not have enough to eat today will be rightly focused on satisfying their immediate hunger over their potential future hunger. We may see more people opting out of automatic-enrolment or ceasing to make contributions to schemes they are already in. This behaviour could have long-term consequences for the future financial health of households. But what can be done for people who genuinely cannot afford to save?

This might be a good time to revisit automatic-enrolment policy and look at ways of easing the burden on those with low incomes. There are already some potential options built into the policy; for example, employers are required to pay 3% of band salary in contributions on behalf of those who do not opt out. This policy could be extended, so that employers make these contributions on behalf of employees even if the employee does not contribute themselves, if their income is below a certain threshold. In the long term, employer contributions could be raised to the full 8% on behalf of employees with income below a certain level. At the current time, employers can elect to pay the full 8% contribution, and some may wish to consider taking this option if they are concerned about employees who may be struggling.

It is also worth keeping an eye on State Pension policy. The way State Pension is increased each year will have an impact on how much today’s workers need to save into private pensions in order to achieve an adequate standard of living in retirement. Maintaining policies such as the triple lock, which result in the State Pension level increasing slightly more quickly than earnings, are a way that government can help mitigate the effect of today’s cost-of-living crisis on tomorrow’s pensioners.

Whatever is done to help those struggling today to continue to accrue pension savings and entitlement will help prevent similar financial struggles when these same people retire.

Daniela Silcock is head of policy research at the Pensions Policy Institute