Minimum contribution rates to U.K. defined contribution plans will increase to 5% of salary for employees and 3% for plan sponsors on April 6, following the latest and last stage of U.K. auto-enrollment legislation, further boosting assets in DC plans.
In 2018, the minimum contribution rates stood at 3% contributed by employees and 2% contributed by their employer, increasing from 1% each a year earlier.
Assets in U.K. DC plans increased 25% in 2018 to £60 billion ($78 billion), according to the January figures published by U.K.'s The Pensions Regulator.
However, DC market participants said in response to the latest increase that the maximum mandatory contributions level could still prove insufficient for participants to obtain adequate retirement outcomes.
Sophia Singleton, partner and head of DC consulting at Aon, said in an emailed comment that "Auto enrollment into workplace DC plans has been with us now for seven years and while its rollout has to be regarded as a success, there have always been reservations about the level of saving it involves and the level really needed for a comfortable retirement. These latest changes are an encouraging and necessary step in making certain that saving rates move up to a suitable level."
Peter Bradshaw, director at Selectapension, an investment planning software provider to financial advisers, said in a separate emailed comment: "Auto enrollment has been a success so far with an estimated 10 million people enrolled in a workplace fund. However, current contribution rates do need to rise to give employees a proper income when they retire. Employers can help their staff by demonstrating the benefits of investing more money now to get a more comfortable lifestyle later."