Increasing the minimum auto-enrolment (AE) contribution rate from 8 per cent to 12 per cent could boost total pension contributions by £10bn a year, according to a report by Phoenix Group and WPI Economics.

The report models how raising the minimum contribution rate could improve savers’ retirement pots and pension investment in the UK economy, as well as highlighting the impact of delaying an increase.

It showed that increasing minimum contributions to 12 per cent could lead to an extra £95,530 in the typical 18 year old’s pension pot at state pension age.

However, the report found that delaying this increase by five years reduces the additional savings by £9,660, while a 10- and 15-year delay would result in £22,090 and £35,050 less in retirement respectively.

The modelling also estimated that increasing contributions to 12 per cent would result in £10bn in additional contributions each year, which could boost the government’s aim of increasing pension investment in UK unlisted assets.

In its Manion House Compact, the government signalled its desire for 5 per cent of pension investment to be in unlisted equities.

Phoenix Group and WPI Economics stated that every five-year delay to increasing minimum contributions would result in around £2.5bn less being invested in unlisted equities.

If assuming a 23 per cent allocation to UK listed equities, every five-year delay could cost £11.5bn in investment in these assets, according to the report.

“Millions of UK adults are not saving enough for their future retirement income, so it is crucial we have a plan to support greater pension saving throughout people’s working life,” commented Phoenix Group CEO, Andy Curran.

“Increasing minimum AE contributions is fundamental to addressing this challenge, particularly as many people are unengaged with their pension or have low confidence in their pension knowledge.

“Alongside the benefits for future retirement incomes, there is a wider economic benefit that pension capital can play in driving investment to sustainable and productive assets, ensuring optimal outcomes for savers remain at the centre of investment decisions.”

Phoenix Group managing director for workplace pensions, Gail Izat, added: “While the success of AE has laid a solid foundation, more needs to be done to help people secure a decent standard of living in retirement. The single biggest lever government can pull to achieve this goal is raising minimum contributions when the time’s right for savers and employers.

"Long-term savings adequacy underpins the financial wellbeing and security of individuals and could help contribute to the success of the wider economy, while employers also have a lot to gain from a financially stable workforce and the potential additional investment in the UK.

“Without action, we risk exacerbating under-saving for people of working age as they move closer to retirement as well as depriving the economy of a highly significant line of finance. Raising contributions as soon as possible has benefits for all.”

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