“The Committee is right to support the demand for a Pensions Bill for stronger regulation of master trusts. Having been an early adopter of the master trust assurance framework, NOW: Pensions fully supports this.
“We also agree that there’s a need to communicate more effectively about workplace pensions. First, in terms of smaller employers, of the companies that signed up with us in the first quarter of 2016, over a third (37%) completed their application either very close to their staging date or after the deadline had passed. Of these employers, 16% contacted NOW: Pensions after their staging date had passed – the highest percentage we have recorded. We believe this will only worsen as we reach the time when smaller employers need to enrol.
“Second, we agree that, whilst the Lifetime ISA is going to be tempting for young savers, the Government needs to make it clear that it is not an alternative to a pension. If a saver put £20 a month into a workplace pension versus £20 a month into a Lifetime ISA, by the end of the year they would have around £600** in their pension versus £300 in the Lifetime ISA. Over a lifetime of saving, a workplace pension offers better value largely as a result of the employer contribution.”
“Another topic that needs to be addressed urgently is the level of contributions. Auto enrolment minimum contributions will not be enough for a comfortable retirement and, if auto enrolment is to be a success in the long term, contributions to workplace pensions need to be increased. The removal of ‘qualifying earnings’ from the auto enrolment calculation, so that contributions are based on every pound of salary, would make some difference. Qualifying earnings start at £5,824 per annum which means that if a worker earns £20,000 their qualifying earnings would be only £14,176. The effect is even more disproportionate for people on lower incomes. For someone on £10,000 a year, only £4,176 of their earnings count, meaning that 8% of qualifying earnings is actually just 3.4% of their total salary.”
* Qualifying earnings are the band of earnings on which contributions to auto enrolment are calculated and for this tax year the band is between £5,824 and £43,000 a year. This means the first £5,824 of an employee’s earnings does not count for the purposes of auto enrolment.
** Based on a contribution of £20 per month in the tax year 2017/18:
Workplace Pension - £600 (monthly of £20 employee net + £5 tax relief + £25 employer)
Lifetime ISA - £300 (monthly of £20 + £5 tax bonus)
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