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Employers and employees need to up their pension contributions

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Current levels of contributions into defined-contribution pensions are enough to secure a reasonable income in retirement for staff, according to the Pensions Policy Institute (PPI).

Speaking at the National Association of Pension Funds (NAPF) conference in Manchester yesterday, Niki Cleal, director at the PPI, told delegates: "It is a fact that employers contribute less into defined-contribution (DC) schemes than defined-benefit (DB) schemes. Combined contributions are not enough and staff and employers must contribute more to ensure employees receive two thirds of their earnings upon retirement.

For medium earners, on a salary of £25,000 to £26,000, the PPI estimates they will need an income of 66% of their salary in retirement, while for low earners this replacement rate needs to be as high as 80% or 85%.

Currently the Government guarantees every pensioner in the UK has their income made up to £130 per week and experts estimate that, to have a "reasonable" lifestyle, pensioners need an income of £180-£190 per week in income.

But Cleal believes this is "woefully inadequate". She said: "For low earners their rate of replacement salary in retirement will be much less than what they will expect."

The average employer contribution into a DC scheme currently stands at 7% plus employee contributions. But when Personal Accounts come into effect in 2012, employers will have to contribute just 3% of salary, employees will contribute 4% and with Government tax breaks, this gives the employee a total contribution of 8%.

"Over time because of the way inflation works, pensioners will get further and further away from the replacement rate they need," explained Cleal. "Current provision is insufficient to meet replacement targets - especially for low earners. Employers need to contribute more and individuals need to contribute more."