AGE LIMIT - Bob Scott, senior partner at LCP, commented:“It is perfectly sensible that people should be auto-enrolled from the start of their working life, if possible. In that way, the deduction of pension contributions is something that they will have always seen and it won’t come as a shock to them at a later point. According to the Pensions Policy Institute, just 7% of under-30s opt out after being enrolled, and this inertia will result in a more favourable retirement savings outcome.”
LOW EARNERS - Bob Scott, senior partner at LCP, commented:“Bringing lower income individuals into auto-enrolment by reducing the threshold is clearly a positive step. Even if the eventual amounts which are saved by the individuals are modest, they provide low earners with flexibility and choices which they would not otherwise have. For example, such savings could provide income to bridge the gap between when they stop working and when they reach State Pension Age.”
SELF/ FLEXIBLY EMPLOYED - Bob Scott, senior partner at LCP, commented:“The gig economy continues to grow. As the modern workforce encompasses more self-employed individuals, it is absolutely staggering that those individuals appear to have been left behind when it comes to saving up for retirement. For gig economy workers which are also clearly future pensioners, auto-enrolment could have made all the difference between just surviving or having valuable additional options and choices at retirement.”
Laura Myers, partner and head of DC investment at LCP, added: “There are many people in the UK who work multiple, often part-time, jobs. Taken together, the income from those multiple jobs can be over the minimum threshold, but they continue to be left out of the auto-enrolment equation. This is a gap that clearly needs to be addressed. It is fundamentally wrong for someone working in a different or more flexible way to be left behind when it comes to auto-enrolment.”
MINIMUM CONTRIBUTIONS - Bob Scott, senior partner at LCP, commented:
“Clear steps are being taken to ensure auto-enrolment is an effective and beneficial step for future pensioners. However, the real challenge is to build on the auto-enrolment base with a viable longer-term policy that leads to significantly more meaningful levels of contribution. Suggested levels range from 12% to 16%, and the next challenge will be to identify ways to help drive this forward whilst maintaining current high participation rates.”
Laura Myers, partner and head of DC investment at LCP, added: “It is imperative that as many people as possible are included within auto-enrolment, and that savings levels into pensions are increased. Without doing so, the UK could easily be heading towards a pensions crisis when the vast majority of the population has to rely on defined contributions savings in their retirement. People shouldn’t be lured into a false sense of security that just because they are auto-enrolled they will have enough to live on in retirement. Even when the level being saved reaches 8% in 2019, we all know it’s nowhere near enough.”
Lee Hollingworth, Head of DC Consulting, Hymans Robertson, says:“Both the reduction of the AE starting age to 18 and lowering the threshold will lead to people saving more for retirement and any changes that result in this are very welcome. But it is disappointing that the changes are not expected to be implemented until the mid-2020s, which will be at a great cost to those who will benefit as they will miss out on many vital years of additional pension contribution.
“Lowering the age to 18, and basing contributions from the very first pound, will significantly increase the retirement outcomes for millions of savers, through the magic of compounding.
“These moves alone, however, will not achieve enough and other measures, such as pushing out the target retirement date to coincide with their State Pension Age and further increasing contributions to a total of 12%, will be needed to achieve an adequate income in retirement. Next year sees AE contributions increasing to 5% with a further increase to 8% in 2019, but there is still a long way to go. At 12% we would begin to see a contribution that will have a meaningful impact for employees’ retirement savings. At that level we can see far greater certainty of them reaching a target income that they can live on in retirement.”
Commenting on the proposed simplified pension statement, Lee says: “There is a strong desire by both the industry and government to have clearer communication and increase engagement with employees about AE and their long term saving. The examples proposed are a significant step forward, but they could and should go further. Some context is needed to make saving tangible to the individual which is where a retirement income target can really help – setting a clear goal and providing clarity on the likelihood of achieving this goal.”
Adrian Boulding, Director of Policy at NOW: Pensions said: “Basing auto enrolment minimum contributions on every pound of earnings sounds like a small technical change but it’ll result in a huge improvement to savers’ pension pots.
“It’s a complete nonsense that the first £5,876 of a worker’s salary isn’t included when calculating auto enrolment contributions. This lower band of earnings affects most auto enrolled savers but is particularly damaging for low paid and part time workers, the majority of whom are women. It means that for somebody earning £10,000, just £4,124 of their salary counts for the purposes of auto enrolment so even when contributions increase to 8%, only 3.3% of their earnings would count.
“By 2020 an 8% contribution will, for most people at least, mean 8%. But, with the upper earnings limit still in place, higher earners (currently those earning over £45,000) still won’t receive the full headline contribution. All savers should receive 8% so this upper band should also be reconsidered.
“But, 8% still won’t be enough and the government can’t continue to bury its heads in the sand. A roadmap for increasing contributions beyond 8% needs to be set out, and this needs to happen sooner rather than later. Remember it’s taken more than a decade to reach just 2% of qualifying earnings!”
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