The government should introduce a new statutory requirement to support long-term defined contribution (DC) workplace pensions adequacy, a report from Phoenix Group and WPI Economics has suggested.

The report recommended that there should be an annual review for the government to assess whether auto-enrolment savings levels are achieving decent retirement outcomes and, if they’re falling short, whether contributions can be raised.

This, according to the group, should be carried out by government itself, while also incorporating views from employers, unions, personal finance charities and other key groups with an interest in pension contributions.

The call for action comes after previous research from Phoenix Insights suggested that around 14 million DC savers were not on track for their expected retirement income.

And whilst there is a broad consensus on the need for increases to default workplace pension contributions, Phoenix Group acknowledged that there is no mechanism for doing this that balances the interests of savers, employers and the wider economy.

Given this, the report outlined a framework designed to support policymakers in determining how and when default contribution rates should increase to 12 per cent, from the current 8 per cent rate.

It was developed alongside a wide range of stakeholders from across different sectors of the economy, including the Association of British Insurers (ABI), British Chambers of Commerce (BCC), the Trades Union Congress (TUC) and the Pensions and Lifetime Savings Association (PLSA).

The framework sets out a series of tests for determining the economic and financial conditions that would allow for default contributions rates to increase, as well as the conditions that would necessitate a pause.

This includes 'start/go tests' to determine when is the right time to start moving from 8 per cent to 12 per cent, 'pause' or handbrake factors, to determine whether increases should be temporarily paused due to extreme wider conditions, as well as wider consideration tests.

Commenting on the report, Standard Life CEO, Andy Curran, stated: “Automatic enrolment has been a huge policy success, helping many more people to save for their future.

“However, research from Phoenix Group’s longevity think tank Phoenix Insights found as many as 18 million people in the UK are not confident they are saving enough to meet their financial goals in retirement.

“The single biggest lever we can pull to boost defined contribution pension savings, and improve retirement outcomes, is to increase minimum auto-enrolment contributions. At the same time, both UK savers and businesses are facing substantial economic challenges.

“But as we enter the second decade of auto-enrolment, it’s vital we keep the conversation about increasing contributions alive, looking at how and when this should happen with a solution for the future.

“We want people to have the best opportunity of having financial security later in life. Acting on increasing contribution rates will mean more people reach retirement in a better financial position and are less likely to rely on the state to support their income. This report outlines a practical approach to taking the necessary steps to set people up for a more secure retirement.”

Adding to this, Standard Life managing director for workplace pensions, Gail Izat, said: “A yearly review into pension adequacy, laid out in law, is needed to structure our approach to balancing much-needed policy with the short-term pressures on employers as well as employees.

“Any move to boost pension provision will involve a trade-off, and it’s worth noting prior large-scale changes like the introduction of the minimum wage and the initial launch of auto-enrolment have passed with little incident and boosted people’s financial and general wellbeing, benefiting employers in the process.

“At the same time, we’ve experienced a swathe of economic challenges in recent years and decisions need to be taken in full context of wider economic conditions.

“Without action, we face ongoing under-saving issues across the generations as they move closer to retirement.”

Adding to this, WPI Economics managing director, Laura Osborne, said: “To avoid the prospect of a bleak retirement for today's median earners, it is critical to increase auto enrolment contributions.

"However, the big question is 'when?', given the current cost pressures faced by both households and businesses.

“This framework takes a pragmatic approach, putting in place meaningful safeguards to ensure that increases in pension savings are only triggered as the economy improves. We believe this can underpin a consensus-based approach to ensuring more people enjoy a decent retirement.”

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