What is the Living Pension UK? Pension contributions scheme explained, how it’s linked to Living Wage 2023
The Living Wage Foundation says people are currently being forced to prioritise the cost of living over saving money for the future
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Known as the Living Pension, it hopes to ensure workers are able to build up a meaningful savings pot through their employer. The Living Wage Foundation, which has developed the scheme, says such a move is vital given the cost of living crisis has forced people to prioritise their spending today rather than think ahead to the money they will need in the future.
It comes as the UK is set to find out the inflation rate for the month of February on Wednesday (22 March). A day after the Office for National Statistics (ONS) releases the latest price rise figures, the Bank of England will meet to decide interest rates, with any further hikes likely to increase people’s mortgage costs.
Household budgets have come under increasing pressure over the last year as everything from the cost of energy bills to food prices have soared. Further price hikes are set to come in from next week, as council tax, water bills and mobile phone deals are all set to become much more expensive.
So, what is the Living Pensions scheme - and how does it work?
How does Living Pensions scheme work?
As with the Real Living Wage, the Living Pensions scheme will be a voluntary commitment employers can sign up to that will benefit their employees. It is particularly aimed at lower earners and aims to build up a pot that will allow them to meet basic everyday needs in when they retire.
It will set a contributions target of 12% of a worker’s salary, of which the employer will pay in at least 7% of the total. It makes the scheme much more generous than current automatic enrolment rules, which require workplaces to pay a minimum of 8% of an employee’s eligible earnings into a workplace pension, with the employer paying in at least 3% and employees’ contributions and tax relief making up the remaining amount.
Employers who sign up to the commitment can refer to themselves as accredited living pension employers and will be able to add the living pension logo to their website. By doing so, it will help workers to see which businesses are offering the most generous schemes.
Katherine Chapman, the director of the Living Wage Foundation, said: “Low pension saving levels are a long-standing issue and our research shows that workers are worrying about an uncertain future. The current cost-of-living crisis is exacerbating the problem. Struggling to make ends meet as living costs soar, many workers are unable to prioritise pension saving, which risks storing up a future crisis of millions unable to afford even the basics in retirement.”
Which employers have signed up for Living Pension?
Several major employers have already signed up to the new Living Pension standard. They include: Aviva, Phoenix Group, Herbert Smith Freehills, the Good Things Foundation and Wealthify.
Speaking about why her company has signed up chief people officer at Aviva, Danny Harmer, said: “By adopting the living pension and paying the living wage, organisations can help their people balance saving for tomorrow with living for today.”
She was echoed by Andy Curran, chief executive of Standard Life (which is part of Phoenix Group) who said: “It’s critical that people are saving enough towards their retirement, and we know that employers have an important role to play in ensuring that the right foundations are laid for their employees’ retirement.”
Meanwhile, Nigel Peaple, director of policy and advocacy at the Pensions and Lifetime Savings Association (PLSA), said the move would help employees find companies with a good pension offering.
“I am very pleased to support the living pension, which seeks to encourage better pensions and higher employer contributions, especially for employees on a modest income. The new initiative, alongside existing measures like the retirement living standards and the pensions quality mark, helps employers and employees identify good provision.”
Additional reporting by PA