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Chancellor Rachel Reeves has suspended the pensions review after concerns it could force employers to increase their contributions to employees' pension pots by billions of pounds.
Reeves wants to avoid putting further pressure on businesses following the backlash to her budget, which hit employers with a £25bn bill for extra National Insurance contributions.
Pensions Minister Emma Reynolds had promised to launch a review into the adequacy of retirement savings before the end of the year, but this has now been postponed indefinitely.
Under current auto-enrolment rules, employees must pay at least 8 per cent of qualifying income into their workplace pension each year, at least 3 per cent of which must come from employer contributions.
Many experts believe that such rates will leave many people without adequate retirement income.
Earlier this year, Phoenix Group, the UK's largest retirement savings company, predicted that raising the minimum auto-enrolment level to 12 per cent would lead to an additional £10 billion in annual pension contributions, shared between employees and employers.
But the Department for Work and Pensions told the Financial Times it would not launch the second stage of its pensions review this year, with people familiar with the case saying Reeves had blocked the move.
“Rachel is keenly aware of the fact that businesses face more tax, and she is serious about ensuring that new burdens are not imposed on businesses,” said one person familiar with the discussions between the Treasury and the DWP.
Reeves announced that he is in the first stage of a pension review Plans for a series of 'mega-boxes' At least £25bn each via defined contributions and local government pension schemes, a move it hopes will free up £80bn for investment in start-ups and infrastructure.
Although government officials insist that the second phase was not “long grass”, there is no new date for when it will be launched. “It's TBC,” one official said.
A DWP spokesman said: “We are determined to ensure tomorrow's pensioners are supported, which is why the Government announced a two-stage pensions review days after taking office. The Government will set out further details about the second stage in due course.”
Sir Steve Webb, a former pensions minister and adviser to the LCP, said the delay was “extremely frustrating” as it could lead to “further lost years”.
“The budget was the death knell for any serious progress on pension adequacy,” Webb said.
When the government announced its pensions review in July, it said it would “consider further steps to improve pension outcomes and increase investment in UK markets, including assessing pension adequacy”.
Pensions experts worry that if the delays continue, it could damage the retirement prospects of millions of savers.
Research this year by the Institute for Fiscal Studies found that 30 to 40 per cent of savers in defined contribution plans are on track to have a retirement income below the minimum retirement living standard set by the trade body the Pensions and Lifetime Savings Association.
“This causes us a level of concern because in our view it represents a very important piece of the jigsaw in terms of the overall review,” said Zoe Alexander, director of policy and advocacy at PLSA.
“We feel there is not a moment to lose in terms of having this discussion.”
The PLSA called for the government to gradually increase minimum auto-enrolment contributions to about 12 percent of an individual's salary.
Phoenix also said a 15-year delay in implementing the increase could result in an 18-year-old losing out on around £35,000 in retirement savings.
