Joanne Segars, Chief Executive, Pensions and Lifetime Savings Association, said:
“Automatic enrolment has been a huge success to date, with almost seven million more people now saving for retirement. Our recent report, Retirement Income Adequacy: Generation by Generation, highlights both the contribution which automatic enrolment is already making to future retirement incomes and the need for minimum contributions to increase in the future to at least 12%.
“The 2017 review is an opportunity for the Government to set a direction for the next decade of automatic enrolment. This should include the creation of an independent commission to advise on how and when to increase contributions in future as well as careful consideration of the current coverage of automatic enrolment. With more than two years to go until automatic enrolment is fully rolled out though we need to focus on the immediate jobs in hand: bringing hundreds of thousands of small employers and millions more savers into workplace pensions, and making sure op-out rates don’t increase as contribution rates rise to 8%.”
Kate Smith, Head of pensions at Aegon welcomes the Pension Minister’s confirmation of the review of automatic enrolment.“Automatic enrolment has been a success, but to keep it that way it needs to keep pace with changes in employment trends, encouraging as many people as possible to save sufficiently to meet their retirement income aspirations for later life.
“We welcome the Pensions Minister’s announcement that the 2017 review of auto-enrolment will look to plug the gaps by extending pension savings to those with multiple low-income jobs, each of which pays below the £10,000 annual threshold for auto-enrolment. It’s also important that pension policy is future fit and finds solutions that work for the growing number of self-employed and gig-economy workers who are not currently benefitting from auto-enrolment. Freezing the annual salary threshold at £10,000 for another year should bring more people into pension saving, but with salaries flat-lining, we may need to consider going further.
“Auto-enrolment contributions are set to rise by 2019 to 8% of a band of earnings between £5,876 and £45,000, but that won’t be enough to give most people an adequate income in retirement. One simple way to increase contributions would be to gradually move to a position where the 8% is on all earnings with no initial earnings excluded.
“The auto-enrolment review must also address a current injustice which means some schemes don’t claim tax relief for low earners who do not pay income tax. With the starting point for paying income tax rising to £11,500 (2017/18), and the auto-enrolment salary trigger staying at £10,000, there will be a greater number of individuals who are auto-enrolled that don’t pay income tax. This makes it imperative that all schemes move to a ‘relief at source’ basis so low earners get the Government boost they are entitled to.”
Commenting on the announcement, Alistair McQueen, savings and retirement manager at Aviva said: “Aviva is pleased to see the government has listened to many of the points raised in Aviva’s review of automatic enrolment, published on 15 November.
“Aviva estimates that up to ten million workers – employed and self-employed – are missing out on the benefits of automatic enrolment. The scope of the 2017 review allows for the needs of these workers to be considered. The review will also consider the age-criteria for automatic enrolment. At a time when all are keen to encourage a longer working life, Aviva has called for the current age ceiling to be lifted.
“Many share Aviva’s belief that current contribution levels are insufficient to deliver a satisfactory income in retirement. The government have chosen to begin, but not conclude, its thinking on this point in 2017. Aviva supports the government’s desire to maintain a consensus, and we look forward to working with them and all concerned to positively progress this important debate over the next year.
“Automatic enrolment has positively revolutionised workplace pensions since 2012. Aviva will support all efforts to maintain this momentum.”
Commenting on the review, Morten Nilsson CEO of NOW: Pensions said: “The auto enrolment review is a huge opportunity for the government to set the roadmap to safeguard the future success of the policy.
It’s quite right that the review focus on the coverage of auto enrolment and what more can be done to bring in those currently disbarred either due to their earnings, age or employment status.
Research* conducted by the Pensions Policy Institute revealed over three quarters (77%) of employees earning less than the auto enrolment trigger are women. Over 50% of part-time workers earn less than the auto enrolment trigger and 81% of part-time workers are women.
It’s also critical to review the impact of the qualifying earnings bands as these have a deeply corrosive effect of savers’ pots. PPI analysis shows removing the trigger and basing contributions on every pound of earnings could improve outcomes for all workers by thousands of pounds and would be particularly beneficial for women.
But, the huge elephant in the room is adequacy of contributions and it’s disappointing that the review is ignoring this crucial question.
Eight years on from the Pensions Bill which brought auto enrolment into being, savers are still only contributing 2% of qualifying earnings. It’ll be 11 years from the 2008 Pensions Bill when savers begin contributing 8% of qualifying earnings.
One of the important lessons we are learning from auto enrolment is that when government set a minimum level of contribution, that’s what nearly everyone ends up paying. There seems to be an implicit assumption amongst both employers and employees that if government took the trouble to mandate a minimum contribution in legislation, then it must be adequate.
Government should be using this review to set a roadmap for increasing contributions to a point where people will be able to enjoy a decent standard of living in retirement as they did in their working years. The longer we ignore this issue, the larger the problem will be and we need to give both employers and employees time to plan in order to make these additional contributions affordable.”
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