What level of pension contribution is needed to obtain an adequate retirement income?
Under automatic enrolment, employers are required to automatically enrol their employees into a qualifying pension scheme. The minimum total contribution rate is 8% of a band of earnings from Â£5,668 and Â£41,450 per annum, of which a minimum 3% must come from the employer. With over 80% of Defined Benefit (DB) schemes now closed to new members or future accruals the majority of employers are expected to select a Defined Contribution (DC) pension as their qualifying scheme. This report analyses what ranges of retirement incomes from a DC pension different individuals might achieve by making only the minimum required level of contributions. The report also analyses the contribution rate necessary for different individuals to have a â€œgood chanceâ€ of achieving an adequate retirement income. This report employs outputs from the PPI Individual Model adapted to use stochastic modelling techniques, based on a model developed by the Department of Mathematics at Kingâ€™s College London. Each individual modelled is run 100,000 times with different economic scenarios. This illustrates better the variability around investment returns and economic variables year on year.
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- John F. Cogan & Olivia S. Mitchell, 2003. "Perspectives from the President's Commission on Social Security Reform," Journal of Economic Perspectives, American Economic Association, vol. 17(2), pages 149-172, Spring.
- Shlomo Benartzi & Richard Thaler, 2004. "Save more tomorrow: Using behavioral economics to increase employee saving," Natural Field Experiments 00337, The Field Experiments Website.
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