Research released today shows that the most important factor in building a decent pension is the level of contributions paid into it.
The report from the Association of British Insurers (ABI) found that contributions at 12% of annual salary can provide a 50% bigger pension pot than contributions of 8%.
With this in mind, should the government's plans for auto-enrolment, as well as their own NEST scheme, be modified to take these findings into account?
Auto-enrolment comes into force from October this year, with total minimum salary contributions initially set at 2%. By the time auto-enrolment is fully implemented, every employee in the scheme must have at least 8% of 'band' earnings paid into a pension on their behalf.
But, many financial advisers have long argued that setting the minimum at 8% is likely to result in a false sense of security for employees, who may mistakenly believe they are saving adequately for retirement.
The rule of thumb on retirement savings is that on joining a pension scheme for the first time, an individual should halve their age and turn it into a percentage. This means that a 30 year old should save at least 15%, for example.
Under the new rules, the youngest people to be auto-enrolled from October will be aged 22. Going by the 'rule of thumb' they would need immediate total contributions of 11% of annual salary to give themselves the best chance of building a decent pension pot.
Whilst it is always better to save some money for retirement rather than none at all, I would argue that the government should increase the minimum total percentage to 12%, even if it means extending the scheme's roll out period. Failing that, they should ensure everyone due to be affected by auto-enrolment is clear on the fact that 8% is unlikely to result in sufficient retirement savings.