Labour considers lowering AE eligibility threshold

Labour is looking to reduce the threshold for workers to be eligible for auto-enrolment to £5,773, a move that would bring an extra 1.5m low-earners into pensions.

Reeves

Work and pensions shadow secretary of state Rachel Reeves told a Resolution Foundation conference this morning that she wanted a return to the original Turner Commission plan of linking eligibility to the lower earnings limit for NI rather than the £10,000 income tax personal allowance.

Two thirds of those who would be brought into auto-enrolment under the plan would be women.

Reeves said: “The Government’s roll back of auto-enrolment’s coverage is yet another way in which they are letting low paid women a drip, drip of policies that are making life harder for women paying the highest price for their policy choices and bearing the brunt of their failure to get our economy working for everyone.

“When it comes to the auto-enrolment threshold, the Government say that people with low earnings would save too little for it to be worthwhile and this is the basis of Steve Webb’s argument today that joining a workplace pension scheme “would not be the right option” for people in this position.

“I have to say it is quite a state of affairs when we have a pensions minister who says that 1.5 million low paid workers should not be saving for a pension.”

TUC General Secretary Frances O’Grady says: “It is absolutely right to extend pensions auto-enrolment to the low paid who are missing out. The government has stealthily been depriving more low-paid women of pensions contributions every year – it is time to put that right.”

Scottish Widows head of corporate pensions Pete Glancy says: “Scottish Widows supports proposals to reduce the auto enrolment threshold, which would help many more people, including over one million women, to better prepare for retirement. Our research shows that 60 per cent of women are not preparing adequately for their retirement – compared to 51 per cent of men, and that over a third of women do not have a pension, compared to a quarter of men.

“While today’s announcement is a step in the right direction, the issue of band earnings also need to be examined to improve the retirement income of lower paid workers. If an employer bases contributions on band earnings rather than full earnings, then someone on a £10,000 salary would get their 8 per cent contribution based on earnings of around £4,000. Basing contributions on full earnings could give a significant boost to individual pension savings and simplify the automatic enrolment process for employers.

“Further measures to improve long term saving might include widening the scope for paying into a pension outside of paid employment and allowing couples to plan for retirement together to give women more flexibility in building up their own pension savings.”

Aegon UK managing director David Macmillan says:  “Extending pension auto-enrolment to catch the UK’s lowest paid workers would be a positive step, but the main challenge will be in determining how affordable auto-enrolment will be for those on the lowest incomes where in many cases household finances are already stretched. This group will benefit from the introduction of the flat rate state pension when it is introduced but additional personal savings accumulated through auto-enrolment would help ensure that they are able to replace the income they loose on retirement. We know from our own research that 9 in 10 people are not on track for the retirement they want, and that making contributions, no matter how small, will help close the gap between their expectations and the likely reality.”