• The Government is facing growing pressure to expand its automatic enrolment reforms
• Conservative MP Richard Holden expected to use a Private Members’ bill today to urge policymakers to:
o Lower the age at which workers are auto-enrolled into a pension from 22 to 18
o Scrap the £10,000 earnings threshold so lower earners are included in the reforms
• Report published by think-tank Onward today suggests that the measures, combined with ditching the earnings band so every pound earned qualifies for a matched employer contribution, could boost pension savings by almost £2.8 trillion (Levelling-Up-Pensions.pdf (ukonward.com))
• The previous Government committed to lowering the minimum auto-enrolment age to 18 and scrapping earnings bands by the ‘mid-2020s’ – although this was before COVID struck
Tom Selby, head of retirement policy at AJ Bell, comments: “Expanding automatic enrolment to younger workers and ditching both the earnings trigger and earnings bands would put rocket boosters under millions of employees’ pensions. It would also bring millions more people into the pension system.
“A full-time worker on the National Living Wage could gain over £90,000 over their working lifetime under the plans, according to Onward, while younger workers could save an extra £20,000 for retirement on average.
“In fact, the Government – albeit under different leadership – previously committed to lowering the age at which people are auto-enrolled from 22 to 18 and ditching the earnings band, so every pound earned qualifies for a matched employer contribution, by the ‘mid-2020s’.”
Business costs
“While these reforms might seem like a no-brainer from employees’ perspective, Prime Minister Boris Johnson and Chancellor Rishi Sunak will be conscious that expanding auto-enrolment will also come at a cost to businesses.
“Given the significant strain many firms have been under for the last two years as a result of COVID and the subsequent national lockdowns, laying extra pension costs at their doors now might risk subduing the UK’s economic recovery. Waiting a year or two so that, hopefully, the economy is a little less fragile may well be the preferred option.”
Building financial resilience
“There is also a genuine debate to be had over whether all employees, regardless of earnings, should be auto-enrolled into a pension.
“For very low earners in particular it is likely immediate priorities – such as paying bills and building up a rainy-day fund if they can afford to – will be more important.
“The need to build greater short-term financial resilience – exposed so brutally by lockdown -may be considered at least just as important as boosting longer term savings.
“What’s more, the full flat-rate state pension currently pays £9,339 a year, meaning for anyone earning less than this it represents a ‘replacement rate’ of over 100%. Many would argue this safety net justifies excluding those earning below £10,000 from auto-enrolment – although of course there are no guarantees over how much the state pension will pay or when it will be paid over the long-term.”
