The chief executive of Legal & General has called for Australian-style phased increases to minimum pension contributions as part of a blueprint for growth which he said could boost UK investment by £220 billion.
António Simões said Britain’s problems were “undeniably challenging” but argued that the solution to the country’s economic woes was “closer than we think”.
Writing in The Times, Simões said: “Productivity has stalled, business investment has lagged and real wages have been suppressed for far too long.”
A new report commissioned by L&G from Oxford Economics argued that by adding pension reforms and insurance capital rule changes to existing government policies already in train, the prize would be faster growth and bigger government tax receipts.
Simões said minimum pension contributions in the UK should be raised from the current 8 per cent to 12 per cent, phased in gradually over six years.
“Other countries have shown what’s possible,” he said. “Australia’s superannuation system grew through incremental, consistent increases in contributions over several decades. It is now worth more than 130 per cent of GDP and provides a stable source of domestic investment. Britain has the same potential and it requires the same discipline.”
Analysts have said that while raising pension contributions is essential for people to have comfortable retirements, the move would be highly contentious because employees would see cuts to their take-home pay and employers would see employment costs rising even faster.
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Australia has gradually phased in higher minimum employer contributions to soften the shock. The floor was set at 9 per cent for the 11 years to 2013, then lifted seven times in small increments. Most recently it was raised from 11.5 per cent to 12 per cent in July.
Minimum contributions in the UK were last raised in 2019, with employees now required to chip in 5 per cent of qualifying earnings and employers 3 per cent. L&G envisages the floor being lifted for both employers and employees to 6 per cent each by 2031.
Simões also called for more relaxed capital rules for insurers. Alongside growth-boosting measures already in train, including planning reform and the Mansion House compact to push more pension money into productive UK assets, the impact could be to add 0.7 per cent to GDP by 2035, the Oxford Economics modelling found.
It would boost investment in the UK by £220 billion over the next decade, it said, and generate £8.8 billion in additional tax revenues. It would also raise annual household disposable incomes by an average of £330, in 2024 prices, by 2035.
The L&G proposals also recommend removing age restrictions and changing the rules so that contributions are based on the first pound earned. Currently the threshold for auto-enrolment is £10,000 and contributions are only based on pay above £6,240.
L&G is the biggest investment house in Britain, with assets under management of £1.1 trillion. It is a major investor in urban regeneration and housing.
In the budget last week, the chancellor set out plans to reduce favourable tax treatment of pensions through so-called salary sacrifice arrangements in a move expected to add to employment costs or reduce pension saving or both.