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DWP: Higher auto-enrolment contributions could damage economy


Department for Work and Pensions deputy director of pensions and ageing Adrian Richards says increasing auto-enrolment contribution rates too quickly could damage the economy.

Speaking at Strategic Society Centre debate on pension contributions today, Richards said he cautions people from “jumping ahead” and says he want reforms to settle down first.

The Investment Management Association has called on the Government to introduce auto-escalation, which is a policy adopted in the US where employees’ pension contributions increase automatically when they receive a pay rise.

Richards said: “It is absolutely critical that we phase in auto-enrolment both to avoid income shocks for employers and employees. By phasing it in it allows agents to adjust.

“In terms of the macro-economy it is a good thing as well because people are withdrawing income that would otherwise be spent.

“The money remains as funds that can be invested but at this moment firms don’t look like they are looking for funds to invest. There is a danger of drawing money out of the economy when it is still fairly fragile.”

Richards welcomed some firms going beyond auto-enrolment contributions out of choice, pointing to a DWP survey showing half of all firms with 250 employees or more were contributing 6 per cent or higher to employee pensions.

He said: “While we need to bed things in and see how it goes before we are interested in enacting further reforms. However, we recognise that 8 per cent will not be enough for many people and we are looking for ideas around re-invigoration or automatic escalation.”



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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Well I have news for the DWP. The current level (never mind any proposed increase) is likely to damage the economy and is going to be about as welcome as a parking ticket for those to whom it is primarily aimed.

    The IFS has just conducted research which shows that workers have suffered ‘unprecedented’ cuts to wages over the past 5 years. One in three works have had their wages frozen or reduced. This at a time when household debt is at record levels and people are busting a gut trying to reduce it.
    How joyous will they feel when they discover that they are about to lose a further 4% and that for small firms having to make up a further 3% this is hardly conducive to them offering a decent pay rise.

    These Civil Servants are away with the fairies. The pension industry is being its usual venal self in applauding AE, as they are salivating at this lifeline to their business. Any real empathy or sympathy to the employee is covered in hypocrisy and self-interest. Sure everyone needs a decent pension, but is this the best way to go about it? I for one don’t think so.

  2. Harry, so what’s your solution?

  3. @Anon 13 June

    I (thank heavens) am not the Chancellor of the Exchequer. However if I was to map out a solution it would be a rather full report. Basically better pensions for the sector of the community targeted by AE should come from the State. The funding for this should come from a root and branch review of current Government income and expenditure.

    For example in our current straightened circumstances I would firstly immediately raise the retirement age to 67. Then I would stop all foreign aid and divert this to pensions. I would ensure that state pension provision be ring fenced (not like current NI which is nothing more than Income Tax). I would work to establish a Sovereign Wealth fund for the long term which would exclusively be used for pensions.
    For all those who have private pension provision that provides (say) over £45k p.a I would halve their State Pension entitlement, but reduce tax paid on pension income.

    Those are just a few ideas for starters. There are many others but I’m not going to provide a dissertation.

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