The ACA says that when coupled with the self-employed – also presently not eligible – there still could be over 12 million of the UK workforce largely relying on the State pension and other State benefits post-2018, by which time most employers will have complied with the auto-enrolment policy. The survey also found employee opt-out rates are rising towards 1 in 4 at smaller firms, with many employers expecting rates to rise as minimum contributions increase in April 2018 and 2019. Post-2019, fewer than half the employers support increases in minimum AE contributions above 8% of qualifying earnings, a level which the ACA and many other bodies say is insufficient to generate an adequate income in later life.
The ACA survey, which was conducted over the summer and received responses from 466 employers of all sizes with over 760 pension arrangements, found consensus on a number of important policy areas (see below), whilst also highlighting worrying trends in pension provision (over page).
Employer consensus on some key policy areas
• 57% think the self-employed should be brought into pension auto-enrolment.
• 87% are against a radical reform of pensions tax, although 77% support more help targeted on those on lower incomes.
• 84% support easements in pension indexation where employers running defined benefit (DB) schemes are in serious financial difficulties.
• 80% say legacy defined benefit scheme costs are creating inter-generationally unfair consequences.
• 79% support tougher penalties for mismanagement of schemes.
• 79% support a lower State pension being flexibly accessible from age 66 as State pension age rises.
• 90% think security and data cleansing needs sorting out before the pensions dashboard goes ahead.
• 72% support capping of individuals’ contributions to social care costs and 59% support a compulsory social care insurance scheme.
Worrying trends in pension provision
Median pension contributions from employers and employees combined into many auto-enrolment (AE) schemes amount to just 2-3% of earnings.
46% oppose reducing the lower trigger point for AE enrolment (currently £10,000pa earnings), meaning millions on lower earnings are not eligible for auto-enrolment into a scheme, whilst 44% support a lowering of the trigger point.
44% oppose increases in minimum AE contributions post-April 2019, when contributions will be a minimum of 8% of qualifying earnings, whilst 41% support a gradual increase.
From April 2019, following the increase in minimum contributions, AE median opt-out rates are forecast to rise to 16-20% of eligible employees from 11-15% at present.
ACA Chairman, Bob Scott, commented: In assessing the survey results, we believe the Government needs to develop a coherent ‘next steps’ strategy that is ready to address the anticipated potential danger of rising opt-outs as employers – particularly small and micro-employers – and their employees react to the increase in minimum contributions in 2018 and 2019. For the majority of these employers, the increases in both employer and employee contributions come very soon after their staging date for auto-enrolment and land in the middle of sizeable projected increases in the ‘living wage’ and pre-Brexit economic uncertainties. The report includes some recommendations that we think might help in this important public policy area. We also comment on what we and employers feel is needed to ensure the greater longevity and sustainability of defined benefit provision, which still underpins the retirement incomes of many millions of pensioners and will do so for some years ahead.
“Our survey points to the need – part of what we see as the ‘next steps’ strategy – that looks to a gradual, but essential increase of the default level of contributions into defined contribution schemes. This is needed to ensure that many more people save sufficient amounts for an adequate retirement income. A gradual increase in minimum contributions to eventually around 16% of earnings should be a target. Without commitment from government to ensure that sums saved into AE are meaningful, we see little prospect that as a society we will be able to address the fears of a growing gulf in retirement incomes from one generation to the next.
“To give subsequent generations a decent chance of enjoying secure, adequate retirement incomes as life-spans generally extend, we call on the Government to review its spending plans, tax rates and incentives to help support this objective at a time when increases in wages and salaries are likely to remain muted for many.”
The survey’s final report is available here.
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