The Investing and Saving Alliance (Tisa) has called for an increase in automatic enrolment (AE) contributions to 12 per cent of full salary, after research revealed that the UK’s mandatory pension provision is nearly half the OECD’s average.

The analysis found that the UK has the worst mandatory pension provision in comparison to the rest of the OECD, with the UK’s Net Replacement Rate (NPR) hitting 28.4 per cent, a 9 per cent fall since 2011, compared to the OECD average of 58.6 per cent.

Whilst the research found that the inclusion of voluntary schemes helped the UK fare better, with the NPR rising to 61 per cent when AE minimum contributions are considered, it clarified that this remains “well below” the broader OECD average of 65.4 per cent.

However, for low earners, the UK’s NPR is better than the OECD average, with the UK’s net replacement rate including voluntary contributions at 82.3 per cent, compared to an OECD average of 75 per cent.

In light of the findings, Tisa has called for AE contributions to be increased to 12 per cent of full salary, to ensure savers in the UK have a more adequate pension provision for later life.

It argued that this was “generally agreed industry wide as an appropriate level”, predicting that this would in turn see the UK NPR increase to 77 per cent.

The increased contribution rate, based on 2019 figures, wold also see the UK move up to rank 12th out of the 36 OECD countries.

Acknowledging the impact of the pandemic on both employees and employers, however, Tisa has proposed "incremental changes" via a contribution escalation schedule which would span six years, following the implementation of the mid-2020 proposals agreed in the 2017 AE review.

It stated that this would allow a period of several years for parties involved to prepare for the changes and introduce them in a gradual way.

The group has also urged the Department for Work and Pensions (DWP) to conduct a second official automatic enrolment review "no later than 2022", as well as calling for more regular reviews in the future.

Commenting on the findings, Tisa head of retirement, Renny Biggins, said: “If the UK is to continue in its progression to offer a truly world-class pension system then, other than making further enhancements to the state pension which we believe would not be palatable to government or the public, we need to increase AE contribution levels to enable us to compare more favourably with our international peers.

“We believe an increase in minimum contribution rates to 12 per cent of salary would just about achieve a balance between an inertia approach and the opportunity to achieve enhanced outcomes through engagement.

“It is a collective government and industry responsibility to ensure AE remains a success, relevant to a constantly changing backdrop of personal wealth, taxes and working patterns, and continues (in combination with state pension) to produce good consumer outcomes which are comparable with our international peers.

“We also recognise that it can realistically take several years for agreed proposals to make their way into legislation, which is why we call for a second official DWP AE review to take place no later than 2022 and for future statutory reviews to take place periodically.”

Commenting in response, a DWP spokesperson said: “Automatic enrolment has been an extraordinary success, with over 10 million workers enrolled into a workplace pension to date and an additional £22.7bn per year being saved compared to 2012 among eligible employees.

“The government’s ambition for the future of automatic enrolment will enable people to save more and to start saving earlier by abolishing the lower earnings limit for contributions and reducing the age for being automatically enrolled to 18 in the mid-2020s.

"Right now we’re delivering our plan to create and protect jobs to help people secure their financial stability today, helping them plan for tomorrow and the retirement they want.”

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