For immediate release: Monday 12 December 2016
Today the government formally announced both the scope of the auto enrolment review and the auto enrolment thresholds for the next financial year.
Commenting on the review, Morten Nilsson CEO of NOW: Pensions said: “The auto enrolment review is a huge opportunity for the government to set the roadmap to safeguard the future success of the policy.
It’s quite right that the review focus on the coverage of auto enrolment and what more can be done to bring in those currently disbarred either due to their earnings, age or employment status.
Research* conducted by the Pensions Policy Institute revealed over three quarters (77%) of employees earning less than the auto enrolment trigger are women. Over 50% of part-time workers earn less than the auto enrolment trigger and 81% of part-time workers are women.
It’s also critical to review the impact of the qualifying earnings bands as these have a deeply corrosive effect of savers’ pots. PPI analysis shows removing the trigger and basing contributions on every pound of earnings could improve outcomes for all workers by thousands of pounds and would be particularly beneficial for women.
But, the huge elephant in the room is adequacy of contributions and it’s disappointing that the review is ignoring this crucial question.
Eight years on from the Pensions Bill which brought auto enrolment into being, savers are still only contributing 2% of qualifying earnings. It’ll be 11 years from the 2008 Pensions Bill when savers begin contributing 8% of qualifying earnings.
One of the important lessons we are learning from auto enrolment is that when government set a minimum level of contribution, that’s what nearly everyone ends up paying. There seems to be an implicit assumption amongst both employers and employees that if government took the trouble to mandate a minimum contribution in legislation, then it must be adequate.
Government should be using this review to set a roadmap for increasing contributions to a point where people will be able to enjoy a decent standard of living in retirement as they did in their working years. The longer we ignore this issue, the larger the problem will be and we need to give both employers and employees time to plan in order to make these additional contributions affordable.”
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Notes to editors
* PPI’s modelling reveals:
- A full time worker earning the national living wage and making auto enrolment minimum contributions can expect a pension pot of £33,100 at retirement. But, if contributions were made on every pound of earnings their pot would increase by 87% and total £62,200.
- For somebody who takes a break to look after children from aged 26 to 32, works part time until 54 and then goes back to work full time, the uplift is greater. If contributions were made on every pound of salary then their pension pot would increase from £11,400 to £21,400 – an 86% increase. However, this would increase even further to £33,200 if the auto enrolment trigger were removed, a 190% increase on the current situation.
- For those with two part time jobs removing qualifying earnings would increase their pension pot by 140% from £20,800 to £49,700. Remove the earnings trigger and their pension pot would be boosted by up to 200%. Currently part-time workers miss out twice as a result of the qualifying earnings calculation. 4.4 million part-time workers earning less than £10,000 are women.
- While removing qualifying earnings would most benefit lower paid workers, it would improve outcomes for all. A median earner who works full time from aged 22 to retirement would see their pension pot increase 31% going from £92,300 to £121,400.
- The impact on a high earner is also marked, with the pot increasing from £172,500 to £244,200, a 42% increase.
NOW: Pensions www.nowpensions.com @nowpensions
NOW: Pensions is one of the UK’s largest workplace pension providers with over a million members and tens of thousands of employers from a wide range of sectors. A subsidiary of one of Europe’s largest pension funds, Danish pension scheme ATP, NOW: Pensions entered the UK market in 2011 with a simple and cost effective workplace pension designed specifically with the auto enrolment market in mind.
NOW: Pensions was one of the first providers to achieve independent assurance of scheme quality in accordance with the master trust assurance framework (AAF02/07) introduced by The Pensions Regulator in conjunction with the Institute of Chartered Accountants in England and Wales (ICAEW).