Commenting on the 2017 auto enrolment review, Adrian Boulding, Director of Policy at NOW: Pensions said: “Basing auto enrolment minimum contributions on every pound of earnings sounds like a small technical change but it’ll result in a huge improvement to savers’ pension pots.
“It’s a complete nonsense that the first £5,876 of a worker’s salary isn’t included when calculating auto enrolment contributions. This lower band of earnings affects most auto enrolled savers but is particularly damaging for low paid and part time workers, the majority of whom are women. It means that for somebody earning £10,000, just £4,124 of their salary counts for the purposes of auto enrolment so even when contributions increase to 8%, only 3.3% of their earnings would count.
“By 2020 an 8% contribution will, for most people at least, mean 8%. But, with the upper earnings limit still in place, higher earners (currently those earning over £45,000) still won’t receive the full headline contribution. All savers should receive 8% so this upper band should also be reconsidered.
“But, 8% still won’t be enough and the government can’t continue to bury its heads in the sand. A roadmap for increasing contributions beyond 8% needs to be set out, and this needs to happen sooner rather than later. Remember it’s taken more than a decade to reach just 2% of qualifying earnings!”