Wage growth is needed to ensure workers do not opt out from auto-enrolment when contribution rates increase over the next 12 months.
That is the view of Aviva savings and retirement head Alistair McQueen, who was responding to the latest Office for Budget Responsibility forecast released after the Spring Statement.
Auto-enrolment contribution rates will increase to five per cent in April next year and eight per cent in April 2019 with the bulk of these hikes paid for out of workers’ wages.
But McQueen says the OBR forecasts do not include any of the agreed 2017 reforms to auto-enrolment, such as the abolition of banded earnings.
The OBR explains some of the weaknesses in its central forecast for earnings growth reflect judgements about the impact of Government policies.
While it expects real household income growth to rise this year, disposable income growth is then expected to fall back slightly in 2019 as average earnings growth slows.
This is partly due to higher pension contributions as auto-enrolment expands and minimum contribution rates increase – and dividend income growth stabilises.
The OBR also says that when forming a view about the path of household consumption growth it has generally focused on a measure of saving that excludes pension contributions as many of these – such as employers’ contributions – are often largely invisible to the employee in real time.
McQueen says: “OBR states its forecasts do not include any consideration of agreed 2017 auto-enrolment changes, including abolition of banded earnings. I hope this does not signal a softening of auto-enrolment ambition.
“OBR estimates that auto-enrolment will reduce average earnings by 0.4 per cent by 2021. We need real wage growth soon, to get employees through the 2018 and 2019 contribution increases.”
Reacting to the lack of pensions announcements in the Spring Statement Aegon pensions director Steven Cameron adds: “While auto-enrolment means nine million extra employees are saving for their retirement through workplace pensions, the self-employed are excluded.
“With the chancellor saying the Conservatives are the champions for small businesses, we need new policies to stop self-employed becoming second class citizens in retirement.”