Hargreaves Lansdown has called for the government to refrain from increasing minimum auto-enrolment (AE) pension contributions beyond the current 8 per cent and look at how to get people to boost their contributions voluntarily instead.

The company also recommended that the government should implement the 2017 Auto-enrolment Review reforms after the effects from the ongoing cost-of-living crisis have disappeared, which its modelling suggested will be after 2025.

Modelling from Hargreaves Lansdown’s Saving and Resilience Barometer also showed that any increase in long-term financial resilience would be offset by a fall in short-term savings.

The barometer modelled potential outcomes of two key auto-enrolment policies: Shifting the minimum age from 22 to 18 and saving from the first pound of earnings, and increasing to a 12 per cent minimum contribution as outlined in an ABI report.

The modelling found that, in the case of the 2017 reforms, there would be a 3.5 per cent increase in long-term financial resilience by the end of 2029, but it would need to be offset against an immediate decrease in people’s surplus income of 3 per cent, while 3 months emergency savings and net financial assets would have decreased by 3.3 per cent by 2029.

In the case of an increase to a 12 per cent minimum contribution, the modelling found that a 9.3 per cent increase in retirement resilience would be offset by an immediate fall in surplus income of 8.8 per cent, with rainy day savings projected to fall by 9.8 per cent and net financial assets by 9 per cent by 2029.

Hargreaves Lansdown’s modelling also found that lower income households would be the hardest hit, as their retirement resilience would be boosted by 15.5 per cent under the 2017 reforms by their surplus income would be immediately decreased by 22.2 per cent.

Hargreaves Lansdown senior pensions and retirement analyst, Helen Morrisey, commented: “Boosting pension saving is hugely important but cannot be tackled in a vacuum. Unless changes are timed carefully, we risk placing demands on people to save for tomorrow that risk undermining their financial position today.

“If people are struggling with their day-to-day costs, then we risk any further boost in pension saving leading to people saving less and even building up debt.

“Auto-enrolment has been an enormous success with over 10 million people introduced to workplace pensions.

“However, the government is now under pressure to move the policy on whether that be through introducing the amendments put forward in its 2017 review or making a plan to boost minimum contributions past its current 8 per cent.

“Such changes would undoubtedly improve people’s retirement resilience, but the scenarios modelled by the barometer make it clear the financial demands they place make people less resilient to more immediate financial challenges.”

Lang Cat director of public affairs, Tom McPhail, added: "To a man with a hammer, every problem looks like a nail; the pensions industry is very good at demanding the government legislate to give it more money, so it is welcome to hear a more measured voice in the debate.

"Before demanding more money, the pensions industry also needs to do some heavy lifting on pension taxation reform. Everyone knows this is a hugely inefficient waste of public money but it is also complex and politically challenging. The pensions industry should be taking a lead to show how it can be achieved."

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