Rachel Reeves 'could be forced into new pension pot tax rise'

Employers could be forced to pay more towards workers’ pensions under radical reforms being considered by Chancellor Rachel Reeves.

A sweeping review of retirement savings is to be launched before Parliament breaks for summer on July 22 — and will look at whether companies should shoulder more of the cost of staff pensions.

At present, under auto-enrolment rules introduced in 2012, a minimum of 8% of an employee’s salary is paid into a pension pot, with workers contributing 5% and employers just 3%.

However, the Department for Work and Pensions (DWP) has warned that these minimum levels are falling far short — with growing fears millions face hardship in old age, the Telegraph reports.

The review will consider how much more needs to be saved and whether the additional burden should fall on employers or employees.

It comes after concerns from the Office for Budget Responsibility (OBR) that the cost of the state pension is spiralling out of control, with spending now forecast to triple by the end of the decade.

DWP officials said the review will also look at whether the planned rises in the state pension age — from 66 to 67 by 2028, and to 68 by the mid-2040s — should be brought forward in light of life expectancy data.

It had been widely expected that Ms Reeves would announce the review during her Mansion House speech this week, but sources confirmed the launch had been delayed due to concerns from businesses already hit by the recent rise in National Insurance contributions.

Industry group Pensions UK has warned that as many as three in five workers set to retire in the 2040s will not have enough saved, with pensioners needing at least £13,400 a year to maintain a basic standard of living.

Other countries have already acted. In Australia, employer contributions rose this month from 11.5 per cent to 12 per cent — adding an extra AUD$317 (£154) a year to the average retirement pot.

Auto-enrolment was introduced by then-Chancellor George Osborne in 2012 to boost private retirement savings. The policy led to a tenfold increase in the number of employees paying into defined contribution pensions between 2011 and 2019.

However, critics say the minimum contribution levels are no longer sufficient — and more radical action is needed.

Earlier this year, Pensions Minister Torsten Bell kept the thresholds steady, despite having previously called for the triple lock to be scrapped.

A government spokesman said: “We cannot pre-empt the outcome of the review with no decision being taken relating to pension contributions.

“We’re reforming the pensions market to drive economic growth, ensure greater security in retirement and put more money in people’s pockets.

“Our Pension Schemes Bill will make pension pots work harder for savers, and our forthcoming Pensions Review will explore how we can take this even further to give hard-working people the retirement they deserve.

“And thanks to our commitment to the triple lock, millions will see their state pension rise by £1,900.”