Pensions adequacy is a hot topic this year. The second phase of the government’s pension review is under way, with the new Pensions Commission examining the adequacy of pension benefits in the UK.
The commission’s final report – in which it will set out its recommendations for reform – is due in 2027.
The current 8% minimum contribution for auto-enrolment, comprising a mix of employer and employee contributions plus tax relief – is widely regarded as too low to provide many people with adequate income in retirement.
Calls for an increase to 12% have been made for well over a decade. But financial pressures on businesses and households over the years have meant it has never felt the right time to do this.
It’s crucial that retirement savings are looked at with a lens of fairness and suitability – not just short-term technical fixes
However, given how financial circumstances and requirements vary between individuals, should auto-enrolment reflect this with different levels of minimum contribution? Or would this just create unwanted complexity?
Are we better off encouraging more people to see the value in additional voluntary contributions and in topping up retirement savings through personal pensions?
Inspiration from abroad
Earlier this year, Danish fintech company Festina Finance suggested that the UK could draw inspiration from other countries – particularly those that are high on the Mercer index, where contribution rates exceed 20%.
The Mercer CFA Institute Global Pension Index benchmarks 52 retirement income systems around the world. In 2025, it has recognised the Netherlands as having the top A-grade pension system, followed by Iceland, Denmark, Singapore and Israel.
Festina Finance UK country head Daniel McLaughlin says: “If we’re serious about adequacy, the conversation needs to be bigger than whether 12% contributions are enough. We need to stop tweaking and start transforming.”
The reluctance of people to make additional contributions is something that policymakers will need to take seriously
Rachael Healey, a partner and specialist in claims against pension professionals at international law firm RPC, believes that any reforms are more likely to succeed if they acknowledge that pension needs differ between individuals, rather than if they normalise flat percentages across the board.
“If we compare our system to, for example, the Dutch system – which the Mercer index rates as among the most robust and sustainable in the world – they’ve got combined workplace contributions vastly exceeding the 8% minimum under auto-enrolment,” says Healey.
“This is achieved by collective agreements on an industry-by-industry basis. It allows a more nuanced approach, where mandatory contributions can vary based on risk and contribution profiles across specific industries.”
David Meliveo, chief commercial officer of People’s Partnership – provider of the People’s Pension – thinks there is a need to explore more flexible approaches to auto-enrolment minimum contributions.
“While commonly recommended minimum contribution levels may work for some, they are likely too high for lower-to-moderate earners,” he says.
The good thing about auto-enrolment is that it is relatively simple and universal. We should try to retain these positives and resist adding complexity
“Setting minimum contributions at 12% from the first pound would push a large proportion of our membership into over-saving.”
However, Meliveo is concerned that introducing flexibility inevitably adds complexity.
“That trade-off is something the Pensions Commission must examine closely,” he says.
For Gallagher benefits consulting leader Mark Pemberthy, the challenge is that a single approach to saving would produce different outcomes for different people, depending on their career length, earning pattern and life stage.
Pemberthy says auto-enrolment is intended to provide a foundation level of retirement saving when combined with the state pension – not to guarantee an adequate retirement income for all personal circumstances.
“Auto-enrolment has been hugely successful in getting people into pension saving, and its simplicity has been a big part of that,” he says.
We need a ‘jam today, honey tomorrow’ trade-off supported by personalised projections and interactive planning tools
“Setting different minimum contributions for different groups would be complicated, creating an admin challenge for employers and confusing employees – the opposite of what auto-enrolment is designed to do. And it still wouldn’t guarantee an adequate retirement income for everyone.”
Holistic route
Scottish Widows head of pensions policy Pete Glancy thinks that a more holistic approach is needed, rather than creating a complex system of varying minimums.
“By tackling today’s financial pressures and building people’s confidence to save – starting with pensions, still the most tax-efficient way to save – we can improve long-term retirement outcomes without undermining the simplicity and success of auto-enrolment,” he says.
A default savings rate works best, says Glancy, because people’s lives and careers are not linear.
“They can go through periods of high earnings, low earnings and unemployment, while unexpected life events such as divorce or illness can also disrupt financial plans,” he says.
While commonly recommended minimum contribution levels may work for some, they are likely too high for lower-to-moderate earners
Whether someone retires alone or as part of a couple – and whether they carry significant housing costs into retirement – has an impact on retirement outcomes. With many adults now predicted to carry a mortgage into later life, or to have to pay high private rental costs, Glancy thinks the current 8% default contribution needs to rise, but affordability will be a challenge.
“The reality of people’s and businesses’ financial pressures means that a blanket increase to contribution levels is likely not feasible just yet, so instead we must focus on supporting those most at risk,” he says.
“The self-employed, those with disabilities, renters and women all face unique challenges when saving for retirement. We must look at practical solutions to help these people save more when they can.”
Mattioli Woods employee benefits team director Andy Dickinson thinks a 15% minimum contribution for auto-enrolment would be more appropriate than the current 8%. However, he agrees that this is not a priority in today’s economic climate.
Setting different minimum contributions for different groups would be complicated, creating an admin challenge for employers and confusing employees
“But, as we recover, using future earnings growth to increase contributions is imperative,” he says.
Dickinson also wonders if artificial intelligence and ‘big data’ could be used to create personalised workplace pensions.
“Technology and the Pensions Dashboard can guide retirement saving through targeted nudges geared towards individual needs, moving beyond the current one-size-fits-all approach,” he says.
“The message must be clear: accept modest reductions in spending power today for significantly better retirement security tomorrow – a ‘jam today, honey tomorrow’ trade-off supported by personalised projections and interactive planning tools.”
Simplicity
Keeping auto-enrolment simple is key for many commentators.
Natasha Newby, employee benefits director at employee benefits consultant Ilumiti, accepts that the current statutory minimum contributions will not provide most people with the retirement income they want, but she is against complicating auto-enrolment.
“The good thing about auto-enrolment is that it is relatively simple and universal,” she says.
We can improve long-term retirement outcomes without undermining the simplicity and success of auto-enrolment
“We should try to retain these positives and resist adding complexity, which could make workplace pensions more difficult to understand, and fewer people will engage.”
For Newby, the best way to improve retirement outcomes is to focus on encouraging those who can afford it to increase their contributions, using simple tools to demonstrate how this will impact their final pension. But will this work?
Meliveo remembers that the 2002-06 Pensions Commission recommended that people make voluntary contributions to supplement statutory minimum auto-enrolment contributions.
“It was thought that a median earner would contribute roughly the same amount again on top of statutory minimum contributions,” he says. “That hasn’t happened and the reluctance of people to make additional contributions is something that policymakers will need to take seriously.”
Making a difference – now
Progeny chartered financial planner Nick Onslow takes a wider view of the issue. He thinks a facility to make higher regular payments and additional voluntary contributions – when money allows – would be positive, but feels employers need incentives to make higher contributions.
UK adults in favour of increasing auto-enrolment contributions
“Being able to start making contributions and receiving employer contributions before age 22 would also help significantly,” he says.
Onslow would also like to see investment fund costs come down for people who are auto-enrolled in company pension schemes, plus a focus on financial education so that employees would be more likely to invest into a wider range of funds at a risk level based on their timeframe to retirement.
If we’re serious about adequacy, the conversation needs to be bigger than whether 12% contributions are enough
Martin Willis, partner at independent consultancy Barnett Waddingham, echoes other commentators in saying that the current 8% minimum contribution under auto-enrolment is not enough. However, although having differing minimums is a good idea in theory, he thinks, in practice it “would be a superficial and technically complex fix” to the problem.
“A much more needed result would be to increase minimum pension contributions across the board for everyone,” says Willis. “But, with business and household financial pressures as they are, this is more likely a long-term ambition than a short-term reality.”
Instead, Willis thinks we should focus on solutions we already know can make a difference to people’s retirement – particularly for those who need it most.
“For example, the long-awaited ‘pound one change’ is a solution that could help to close the gap and improve pension adequacy for low-income earners,” he says.
“Currently, auto-enrolment is paid only on earnings above a lower limit of £6,240. But, with this model, contributions would begin as soon as the first pound was earned, enabling low-income workers to begin their pension savings at a lower margin, for longer.”
A blanket increase to contribution levels is likely not feasible just yet, so instead we must focus on supporting those most at risk
Another idea is to introduce auto-escalation of pension contributions – increasing employees’ pension contributions gradually over time for those who can afford it.
“For this to work well, employers need to combine it with strong governance and clear engagement, so that people understand what’s happening and feel supported in their financial choices,” says Willis.
“As the Pensions Commission starts its long and complex journey to fix vital areas of our pension system, it’s crucial that retirement savings are looked at with a lens of fairness and suitability – not just short-term technical fixes.”
Amanda Newman Smith is features writer for Money Marketing
