Both the Pensions Minister and the TUC have set out their priorities for the review. The Pension Minister wants to focus on member engagement and looking at ways of bringing more women and workers on low income into auto-enrolment.
The TUC is also concerned about the 4.6 million low-income workers who are excluded from auto-enrolment as they earn less than £10,000 a year, the auto-enrolment trigger. Of these 3.4 million are women, many are part-time and have multiple jobs and often their total income is more than £10,000, but they miss out on an employer pension contribution because of the way the pension rules work.
Here, Aegon sets out its own priorities agreeing that employee engagement and widening the scope of auto-enrolment must be at the heart of the review.
Kate Smith, head of pensions at Aegon said: “The Government review of auto-enrolment is scheduled to take place in 2017, five years after the experiment to get millions more saving for retirement started in 2012. This is despite its roll-out not due to finish until 2019, when all employers will be auto-enrolling their employees into a workplace pension scheme and the minimum statutory contribution will have risen to 8% of a band of earnings.
“Negotiations around the EU exit will extend well into 2018, taking up much of the government’s time and energy, but we can’t allow this to stall long term domestic pension policy. We are learning what works and what could be improved to get the UK saving more for their retirement. Shortly before the Referendum the Pensions Minister set out her stall, including a focus on member engagement and bringing more women and people on low incomes into auto-enrolment. The recent TUC report highlights the exclusion of part-time low-income workers, mainly women, from pension saving as many earn less than £10,000 a year, the auto-enrolment trigger. The 2017 review must go ahead as planned and look at ways to stop women falling through the cracks of auto-enrolment. It should be a priority to address the issue of women with multiple part-time jobs and to drive up member engagement.
“The harsh truth is that for most people to achieve the retirement income they aspire to, which according to Aegon’s recent research is a very ambitious £38,000 a year, an 8% contribution isn’t going to be enough. Forcing people to save more would be a hard sell politically. We would far rather have willing participants who engage and understand the benefits of long-term saving. The post 2017 emphasis should be on widening auto-enrolment eligibility, encouraging greater engagement and promoting the benefits of saving.”
Aegon’s wish list for the 2017 review of auto-enrolment:
1. Drive up member engagement - focus on member engagement with positive messages about the benefits of long-term savings. The Government should work with regulators, public advisory bodies, providers and advisers to drive up member engagement, and make pensions more visible, for example, by directing savers to online tools.
2. Encourage auto-escalation initiatives - incentivise employers to implement auto-escalation initiatives, encouraging employees to sign up to higher contributions from a future date, for example, related to a pay rise.
3. Freeze the earnings trigger - bring more workers into auto-enrolment by freezing the annual earnings trigger at £10,000.
4. Bring together low income multiple jobs - enable more low income workers with multiple jobs to benefit from an employer contribution by bringing together all their earnings, rather than exempting all employments where earnings are below the £10,000 threshold.
5. Make more earnings pensionable - make contributions more meaningful by gradually removing the initial band of earnings on which statutory contributions are not paid.
6. Give access to a pensions dashboard - require all workplace schemes to provide access to a pension dashboard, where workers can see all their pensions, including the State pension, online.
7. Incentivise the self-employed to make the equivalent of auto-enrolment pension contributions.
8. Ban employer contributions to LISA - ensure the Lifetime ISA is not allowed to undermine auto-enrolment and with this in mind, continue to ban employer contributions to LISA.
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