Pension providers say saving for retirement is not the “immediate priority” of the country’s lowest earners and the Government should resist calls to extend auto-enrolment.
Last week at a Work and Pensions committee evidence session pension experts called on the Government to use the 2017 review of auto-enrolment to expand the scope of the policy.
Under existing legislation, only workers earning above £10,000 qualify for auto-enrolment, with contributions taken from earnings between £5,772 and £41,865.
But Association of Consulting Actuaries chairman David Fairs and Citizens Advice policy researcher Thomas Brooks said the earnings trigger should be lowered and the banded earnings expanded.
Fairs said: “At the moment under auto-enrolment, the first £5,800 don’t have contributions paid on them. That threshold was introduced so you would get a meaningful level of contributions beyond £5,800. What we’re suggesting is that goes down to zero and therefore the £10,000 threshold could be reduced to £5,000.”
But former pensions minister and Royal London director of policy Steve Webb says while “all these parameters are legitimately up for grabs” there are “big issues” that makes expansion complex.
He says: “The first thing to address is the cliff edge – if employees and employers get an £800 hit when an employee goes £1 over £10,000 we know when you have those kinds of threshold everyone clusters just below.
“Second, you don’t want to auto-enrol people at very low wages – say, £5,000 – when the state pension will come in at £8,000. There is enough of an issue about people employing carers and nannies and having to auto-enrol them – if that’s the case at £200 a week, imagine if it was £100 a week.
“Think of all the people who are not employers, don’t run PAYE and maybe not even National Insurance, who you would be requiring to run a pension scheme for very small amounts of money.
“It’s not a stupid idea to look at going from the first pound or a lower band, but there are big issues that needs to be looked at and they are not self-evident.”
Standard Life head of pensions strategy Jamie Jenkins says: “I’m supportive of basing contribution levels on a wider band of income as this is simpler and more effective than the current band structure.
“However, people with earnings as low as £5,000 may have more immediate priorities than long-term saving, given they will likely get more than this from the state in retirement anyway.
“The real focus should be those with multiple jobs, where individual earnings from each employer fall below the trigger for auto-enrolment. And perhaps, more importantly, the much overlooked 4.6 million or so self-employed.”
Fairs and Brooks also backed Government intervention to help boost the savings of self-employer workers.
Chris Daems, director, Cervello Financial Planning
I like the idea of expanding the scope of automatic enrolment to ensure the lowest paid can benefit from both workplace pensions and employers contributions but there are two things to consider. First, whether employee contributions will be affordable to many lower-paid workers and, second, whether with so much change, now would be the right time to implement it. I suggest any changes need to be considered after 2018 when we understand what has and has not worked when it comes to auto-enrolment.