The level of the charge cap and the challenge of engaging multiple jobholders and the self-employed with pension saving will form part of a Government review of automatic enrolment review unveiled today.
The DWP has also today confirmed that the automatic enrolment trigger will be frozen at £10,000 for the 2017/18 tax year, which means that with the nil rate band increasing to £11,500, the number of workers not getting tax relief where they save through a net pay scheme will increase. The upper limit of the qualifying earnings band will be £45,000 for 2017/18, while the lower limit will be £5,876.
The review comes as new research out today highlights that nearly £82bn was saved into pensions last year, of which almost 60 per cent was contributed by employers. The DWP says the estimated average amount of contributions for workers of medium or large firms has increased to 8 per cent of employee earnings, 4 times higher than the current minimum contribution rate.
The Government will engage with stakeholders in Q1 2017, but says it will not be setting out policy recommendations until towards the end of 2017. A specially appointed policy group, to be named in 2017, will conduct the review, in partnership with the DWP. It will also consider contribution levels and proposals for increasing engagement, but no policy decisions will be made on these issues in 2017. Providers have accused the Government of dragging their heels in tackling low contribution rates.
Secretary of State for Work and Pensions Damian Green says: “After years of people not saving enough, automatic enrolment is helping millions of people, many of whom are low earners, benefit from a workplace pension. This will continue to boost retirement pots and help safeguard people’s standard of living in later life.
This government is committed to building a country which works for everyone, not just the privileged few, and now is the right time to consider who else – beyond the 10 million already set to benefit – could gain from automatic enrolment.”
Pension minister Richard Harrington told Parliament: “An examination of the level of the charge cap, which was intended to take place in 2017, will also be incorporated within this review. This will assess whether the level of the cap should be changed and whether some or all transactions costs should be covered by the cap.
“In the early part of 2017 we will be engaging with stakeholders from across industry on these issues. Towards the end of 2017 we will publish a report setting out policy recommendations.
The review will be an opportunity to strengthen the evidence around appropriate future contributions into workplace pensions. It will also consider how engagement with individuals can be improved so that savers have a stronger sense of personal ownership and are better enabled to maximise savings. We do not expect to make policy decisions on these areas during 2017.”
Royal London director of policy Steve Webb says: “The plans for the Government’s review of automatic enrolment deserve two cheers. It is very welcome that the pensions crisis among the self-employed is to be considered, with new figures published today showing just one in seven self-employed people is saving in a pension. It is also good news that the review will look at other groups who are missing out.
“But the ‘elephant in the room’ is the small amounts of money that are going in to these pension arrangements. Even by 2019 the minimum contribution rate will be just 8 per cent, far below the required level for a decent retirement for most workers. This review needs a sense of urgency on this key issue and must come up with plans to get contribution levels up to a more realistic level as soon as possible.”
Aegon head of pensions Kate Smith says: “Freezing the annual salary threshold at £10,000 for another year should bring more people into pension saving, but with salaries flat-lining, we may need to consider going further.
“Auto-enrolment contributions are set to rise by 2019 to 8 per cent of a band of earnings between £5,876 and £45,000, but that won’t be enough to give most people an adequate income in retirement. One simple way to increase contributions would be to gradually move to a position where the 8 per cent is on all earnings with no initial earnings excluded.
“The auto-enrolment review must also address a current injustice which means some schemes don’t claim tax relief for low earners who do not pay income tax. With the starting point for paying income tax rising to £11,500 and the auto-enrolment salary trigger staying at £10,000, there will be a greater number of individuals who are auto-enrolled that don’t pay income tax. This makes it imperative that all schemes move to a ‘relief at source’ basis so low earners get the Government boost they are entitled to.”
Scottish Widows retirement planning expert Jackie Leiper says: “The decision of the DWP to freeze the trigger at £10,000 for the next tax year will mean the continued exclusion of many part-time and low paid workers from this valuable benefit. The latest Scottish Widows Women and Retirement Report also reveals that twice as many women as men have two jobs yet are still below the £10,000 threshold.
“We believe automatic enrolment should be available to as many people as possible and call on the Government to reduce the threshold to the starting point of qualifying earnings – the band of earnings which are used to calculate automatic enrolment contributions – which is currently £5,824.
“It’s encouraging to see that the DWP is focusing on the self-employed for further review. Figures from our latest Scottish Widows Retirement Report show that a quarter (24 per cent) of self-employed people are not saving anything at all for their retirement. As the number of self-employed continues to grow significantly year-on-year, this is becoming a serious problem that must not be ignored. We believe there should be more incentives for the self-employed to save, for example by making pension contributions deductible when calculating National Insurance liability.”