By Fiona Tait, Technical Director, Intelligent Pensions
This is a fantastic achievement. It also appears that the additional savers are largely the ones we want them to be. The greatest increase in the number of savers comes from young people and women, with participation rates nearly doubling for 22-29 year olds and the proportion of female workers contributing now equalling men at 73%.
Key recommendations
The results are positive, but the effects are offset by the fact that both groups include a high proportion of lower paid workers.
Participation rates have certainly increased in the group earning just over the threshold, (£10,000-£19,999), however the relative impact of the contribution threshold means the amount they are saving is still very low.
Part-time workers still lag behind in terms of the numbers participating in workplace pensions, and there are particular concerns about individuals with multiple jobs who do not qualify for AE under any single position. The review proposes to address this with a number of recommendations:
• Lowering the age criteria to 18 to reflect new National Minimum Wage criteria.
• Removing the lower earnings limit so that contributions are made “from pound zero”, increasing overall savings and making it easier to understand and implement.
• Removing the category of “entitled worker” so that any workers opting in to AE will receive matched contributions up to the employer minimum.
These measures will bring more young people into the sphere of AE and increase the amounts being saved, particularly by lower earners. It doesn’t directly solve the issue of automatic inclusion for multiple job-holders, but makes it more worthwhile for them to opt in.
No change
A number of things will not change. The review considered and rejected changes to the upper age limit, earnings threshold and universal employer participation. The 33% opt-out rate among older workers is much higher than average so automatically including workers over SPa may not achieve a lot.
The argument for retaining the earnings trigger at £10,000 is less clear-cut. Responses to the review were conflicting and the decision to make no change probably reflects this. One of the main issues is the anomaly between tax relief for Net Pay (NPA) and Relief at Source (RAS) arrangements, but suggests that this may be resolved by improvements in digital tax systems and it should be kept under review.
Ongoing problems
The review has identified 3 strategic issues that need further work:
1. While more workers are saving under AE, current saving levels are too low. Starting people earlier and lowering the contribution threshold will make a difference but it will not be enough unless the minimum contribution rate eventually rises above 8%.
2. Self-employed individuals are not automatically enrolled and savings rates are decreasing in this group.
3. The new savers under AE are not actively engaged with their savings plan and may not be making the most if it.
Increasing saving levels is the biggest issue by far but we knew that increasing minimum contributions was out of scope for this review, and it has done as much as it can by changing the eligibility and threshold criteria.
The issue of the self-employed is however squarely in scope. The review considers that targeted intervention is required to improve savings rates, however the diversity of the group and lack of existing models means that further research is needed. The review recommends testing a number of possible approaches in 2018 including the use of self-assessment software programs to create intervention points and/or changes to National Insurance Contributions to mirror the incentive of employer contributions.
With regards to engagement the review highlights a number of initiatives are already proposed, including the pension dashboard and single guidance body, and considers how other suggestions such as “Save More Tomorrow” and auto-escalation schemes or “Mid-Life MOTs” might add value.
Timing
The proposed changes to eligibility and contribution criteria are suggested for implementation in or after 2020 when the scheduled increases to minimum contributions will be complete. This is in order to give employers time to prepare and avoid concurrent changes impacting at the same time.
|
