Rachel Reeves puts pensions review on hold to avoid extra burden on UK business

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Chancellor Rachel Reeves has delayed the pensions review after fears it could force employers to increase their contributions to staff pension pots by billions of pounds.

Reeves wants to avoid putting further pressure on business after the angry backlash to his Budget, which hit employers with £25 billion in extra National Insurance contributions.

Pensions Minister Emma Reynolds had promised to launch a review looking at the adequacy of pension savings by the end of the year, but this has now been postponed indefinitely.

Under the current self-enrolment rules, staff must pay at least 8 per cent of relevant earnings into their workplace pension each year, of which at least 3 per cent must come from employer contributions.

Many experts believe such rates would leave many people without adequate retirement income.

Earlier this year, the Phoenix Group, the UK’s largest pension savings business, predicted that raising the minimum self-enrolment rate to 12 per cent would result in an extra £10 billion in annual pension contributions being shared between employees and employers.

But the Department for Work and Pensions told the Financial Times it would not launch a second round of pension reviews this year when people were briefed on the matter, saying Reeves had blocked the move.

“Rachel is very aware of the fact that businesses are facing more tax and she is serious about ensuring that no new burden is placed on businesses,” said one person familiar with the discussions between the Treasury and the DWP.

In the first phase of the pension review, Reeves announced plans for a number of “mega funds”. at least £25bn each for defined benefit and local authority pension schemes, a move he hopes will free up £80bn for investment in start-ups and infrastructure.

Although government officials insisted that the second phase was not “long grass,” there is no new date for when it might start. “It’s TBC,” one official said.

A DWP spokesperson said: “We are determined to ensure tomorrow’s pensioners are supported, which is why the government announced a two-phase pension review days after taking office. The government will provide further details on the second phase in due course.”

Sir Steve Webb, former pensions minister and LCP adviser, said the delay was “deeply distressing” as it could lead to “more wasted years”.

“The budget was the death knell for the prospect of any serious progress on pension adequacy,” Webb said.

When the government announced its review of pensions in July, it said it would “consider further steps to improve pension outcomes and increase investment in UK markets, including a pension adequacy assessment”.

Pensions experts are concerned that if the delays are extended, it could jeopardize the retirement prospects of millions of savers.

Research this year by the Institute for Fiscal Research found that 30 to 40 per cent of savers in defined contribution schemes are set to have a retirement income below the minimum pension living standards set by trade body the Pensions and Lifetime Savings Association.

“It gives us a level of concern because from our perspective it’s a very important piece of the puzzle in terms of the overall review,” said Zoe Alexander, PLSA’s director of policy and advocacy.

“We feel there is no moment to lose in terms of having this debate.”

PLSA has called on the government to gradually increase the minimum auto registration fees to about 12 percent of an individual’s salary.

Phoenix also said that a 15-year delay in implementing this increase could result in a typical 18-year-old losing around £35,000 in pension savings.