Minimum contributions into workplace pensions should be gradually increased over the next decade and access to schemes should be widened, a body representing insurers has urged.
Automatic enrolment into workplace pensions started nearly 10 years ago, with companies and their employees being phased in from October 2012.
The Association of British Insurers (ABI) said an action plan is now needed for the next 10 years.
This would build on the success of the scheme which has brought more than 10 million people into workplace pensions, including many more women, lower earners and younger people building an asset for their future.
The initiative currently requires employers to automatically enrol employees who are over the age of 22 and earn at least £10,000 a year into a workplace pension scheme.
The successes of auto-enrolment and low opt-out rates have led to more than £28 billion extra being saved into workplace pensions in 2020, compared with 2012.
But despite the huge increase in the number of pension savers, some people are not putting away enough for a comfortable retirement, with minimum contributions unlikely to be sufficient for many people.
To address this gap, the ABI recommends gradually increasing the minimum contribution rates from 8% to 12% by 2032 – with the new minimum contribution being split evenly between employers and employees.
Its report suggests a timeline, with changes starting to be introduced after 2025.
Currently, the 8% minimum includes a 3% minimum employer contribution, with 5% coming from the employee. Contributions also benefit from tax relief.
With living costs in mind, the ABI recommends that savers should have flexibility as minimum contributions potentially increase, including allowing them to “opt down” to 10%.
Alternatively, it suggests that a minimum contribution could be set at 10% with the option to “opt up” to 12%.
It said further research is needed to determine which is more affordable for both employers and savers.
The ABI said it is also urging the Government to bring forward commitments made to extending automatic enrolment, by lowering the age threshold from 22 to 18, and reducing the earnings threshold so that contributions are made from the first pound earned.
These were scheduled for the mid-2020s and need to be legislated for as a matter of urgency, the body said.
The current structures of automatic enrolment are unlikely to work for self-employed people, the report said.
Instead, they need their own system which could be based on diverting increased National Insurance contribution payments, it suggested.
The ABI said it also believes the Government should revisit the debate about early access to pensions in times of specific financial hardship.
ABI director-general Hannah Gurga said: “Automatic enrolment has transformed workplace pension savings in this country.
“But the challenge remains to ensure people are saving enough for their retirement.
“For the next 10 years, we need a detailed plan for getting to higher contributions.
“Our report published today sets out the industry’s thoughts on how to achieve this – we stand ready to work with the Government to ensure the next decade of automatic enrolment builds on the proud record of its first 10 years.”
Dr Yvonne Braun, director of policy, long-term savings and protection at the ABI, said: “The huge success of automatic enrolment reflects a long-term plan based on consensus between political parties, industry and employers.
“We need the same approach now to determine the future of the policy, ensuring more people are included and are saving enough, with the right level of flexibility.
“Our report describes the key steps for the next chapter of automatic enrolment and sets out specific recommendations to adapt and evolve the policy.
“We also need to see more people engaging with their pension savings, which is why the industry has come together to launch the pensions engagement season.
“By paying more attention to their pension, people will be able to understand if they’re saving enough and what actions they might need to take if they’re not.”
Phil Brown, director of policy at B&CE, provider of The People’s Pension, said: “Millions of people are only making the minimum contribution to their pension, which in many cases won’t be enough for people to live on in retirement.
“While a conversation about the minimum contribution rate is desperately needed, it should not just be between the pensions industry and Government, we must find consensus among employers and trade unions too.
“The current cost-of-living crisis climate means that now is not the right time to do it, but we need to be ready to consider the future of automatic enrolment once the economic situation improves.”
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “Boosting savings levels is a tricky balancing act. We need people to save more for tomorrow but not at the cost of harming them today and the pandemic and ongoing cost-of-living crisis has had a significant impact on the population’s financial resilience.”
Nigel Peaple, director of policy and advocacy at the Pensions and Lifetime Savings Association (PLSA), said: “First, from the mid-2020s, the Government should implement its plans of extending pension savings to the over-18s and commence pension saving on each pound of savings.
“Then around the end of the decade, pensions should be ‘levelled up’ so that employers match employee contributions. This would mean 10% of pay goes into pensions but would not require extra contributions by workers.
“Finally, when affordable, in the early 2030s, contributions should be increased to 12%.”
A Government spokesperson said: “Automatic enrolment has succeeded in transforming pension saving, with more than 10.6 million workers enrolled into a workplace pension to date and an additional £28 billion saved in 2020 compared to 2012.
“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, benefiting younger people, low-paid and part-time workers as they will receive contributions from their employer from the first pound earned.
“We want to make sure that these changes are made in a way and at a time that is affordable, balancing the needs of savers, employers and taxpayers.”