The pensions industry has welcomed government reforms to boost auto-enrolment while raising concerns about their limited scope and time it will take to implement them.
In its much anticipated review into auto-enrolment the government says it will lower the age at which people are eligible for a workplace pension from 22 to 18.
The government also wants to remove the lower earnings limit, which is currently £5,875, so individuals can put more of their salary into their pensions from the start of their contributions.
A document published yesterday on the Department for Work and Pensions website estimated the combined effect of lowering the age limit to 18 and removing the lower earnings limit would generate over £3.8bn in additional pension saving by 2020/21.
However, these proposals, due to take effect from the mid-2020s, are criticised by a number of experts who believe they should be implemented sooner.
Royal London director of policy Steve Webb calls the pace of reform “pedestrian” and says it could lead to a lost generation of people in their late 40s and 50s unable to retire.
He adds: “There are some great ideas in this review, including starting pension saving at age 18 and making sure that every pound that you earn is pensionable. But the proposed pace of change is shockingly lethargic. Talking about having reforms in place by the mid 2020s risks leaving a whole generation of workers behind.”
Meanwhile, the government says it will conduct trials under auto-enrolment to determine what the best approach to the self-employed is.
AJ Bell senior analyst Tom Selby questions the government’s position on this in relation to the Conservative Party’s manifesto commitment to include the self-employed in the auto-enrolment reforms.
“Most would regard the new pledge to simply encourage self-employed people to save in a pension, rather than them being auto-enrolled and having to opt out, as breaking this manifesto commitment – hardly a road the government will want to go down having already had its fingers burnt when trying to raise NI contributions for the self-employed,” he explains.
Aegon head of pensions Kate Smith says it is wise the government has decided not to change the headline contribution rate, due to increase to 8 per cent in April 2019, until it sees what the opt out rates will be.
“There’s a growing recognition that 8 per cent of band earnings won’t be enough to secure an adequate retirement income so this move will go some way to boosting how much is being paid in,” she says.
“There’s always a risk that people will be put off saving when more is taken from their pay packets so we’re pleased the government will be studying how people react to increases in contributions which are due in 2018 and 2019.”