Graham Vidler, Director of External Affairs at the Pensions and Lifetime Savings Association (PLSA) said: “Today’s announcement is an important step on the road to helping people save enough for retirement. By increasing the salary band on which people are saving, and extending automatic enrolment to younger workers, more money will be going into pensions. The PLSA has long argued that automatic enrolment should cover more people and that contributions should rise, ideally to 12% over the next decade. The new measures, plus the commitment to review contributions after 2019, marks real progress and we look forward to supporting the Government in implementing the policy.”
Age Threshold: “We are particularly pleased to see Government taking on board our proposal to reduce the age threshold from 22 years-old to 18 years-old as the earlier people start saving the better their retirement will be. The changes suggested today will have a material impact on younger people’s pension savings. Indeed, the changes to the age threshold and the removal of the lower earnings limit would see someone who started saving at 18 years old build a pot of 15% more than someone who started saving at 22 years old.”
Removal of Lower Earnings Limit:“This is a major change that will mainly benefit lower earners. While lower earners will be asked to put proportionately more of their earnings into a pension, they will also benefit from a proportionately greater employer contribution. For someone earning £12,088, this will mean almost doubling their total pension contribution** or an immediate 3% pay rise.
Self- Employed: “Between 2001 and 2015, the number of self-employed people who contributed to a pension scheme fell from 1.1 million to 380,000 so it is vitally important that we tackle this challenge before it becomes even more serious***. The review appears to recognise the complexity of this issue and we feel that pilot projects with the self-employed are the right way forward. We look forward to engaging with Government to find a durable solution.”
Contributions:“Ultimately, the best and simplest way to improve retirement outcomes is for people to put more into their pensions. However, it seems prudent to ensure that the implementation of the automatic enrolment increases in 2018 and 2019 happen smoothly and we take the opportunity to learn from the process. We welcome the Government’s Commitment to review legal minimum contribution limits after 2019. The PLSA has consistently called for contributions to rise to 12% in the 2020’s and it is crucial that the savings culture in the UK continues to grow.”
Steve Webb, Director of Policy, Royal London: “There are some great ideas in this review, including starting pension saving at age 18 and making sure that every pound that you earn is pensionable. But the proposed pace of change is shockingly lethargic. Talking about having reforms in place by the mid 2020s risks leaving a whole generation of workers behind. Those who never got to join a final salary pension and who have only recently come into pensions through automatic enrolment need urgent action to help them build up a decent pension pot. This pedestrian pace of reform risks creating a ‘lost generation’ of people in their late forties and fifties who will simply be unable to afford to retire”.
Darren Philp, policy director at The People’s Pension, said:“It’s fantastic to see that the government has listened to growing calls from the pensions industry to strengthen auto-enrolment. Today’s announcements are a huge leap forward and will help millions of people save more for their future.
“Extending pensions cover to younger people in the workplace is exactly the kind of move that we were hoping to see from the review. The earlier people start saving, the more investment growth can do the heavy lifting for them in saving for their retirement. It also kick-starts the savings habit from an earlier age.
“At a time when half the UK believes they won’t have enough money to support their desired lifestyle once they’ve finished work, it’s vital that we enable people to start planning ahead as soon as possible.
“It’s bizarre that since the inception of auto-enrolment, people’s contributions have not been based on their entire salary. The People’s Pension has long-called for this to change as we believe it’s nonsensical and adds an unnecessary layer of complexity to an already complex system. We are pleased to see that people will now be supported to save more as contributions will now start from the first pound of someone’s pay packet.
“The government’s decision to test different ways to support self-employed save for their retirement, is an encouraging step forward. Self-employed workers make up 15 per cent of the British workforce, and it is a sector that is under pensioned. It is great to see the Government, looking to build on the lessons of a successful introduction of auto-enrolment, to see how we can extend more pension saving to the self-employed.
“As well as widening access to pensions, this review signals that pension contribution levels will be reviewed after the implementation of the 8% contribution rate in 2019. For many people we know that saving 8% of their salary won’t be enough and what we need is a real and urgent debate as to what the right level needs to be in the future.”
Stephen Lowe, group communications director of Just Group: “Now that auto-enrolment is up and running the government is keen to fill in the gaps and strengthen it such as by widening it to include more young workers and raising contribution rates.
“However, arguably the biggest gap is what happens at retirement. As other countries such as Australia have discovered, you can put in place policies to get workers saving but you also need to encourage them to make good decisions about what to do with those savings.
“The DWP’s analysis considers ‘life journeys’ and the impact on pensions of events such as marriage or divorce, having children, suffering health problems or bereavement. It doesn’t include retirement so is really only a ‘working life journey’. At some point that needs to be addressed because there is mounting evidence that just because people have built up a pension, that doesn’t mean they know what to do with it.
“Using the same auto-enrolment principles to default people into receiving pension retirement guidance at a key time in life would be a much more coherent approach than the current situation which basically seeks to use cleverly designed policy nudges to build up a pension then encourages a total free for all from age 55.”
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