Pension pots can be built up through workplace pension schemes which are now governed by AE rules. The rules in place force every employer in the UK to put eligible staff into a collective workplace scheme and then contribute to it.
Additionally, 78 percent of employees with Defined Contribution pensions contributed at least three percent of their earnings, up from 37 percent in 2018; which the ONS argued is likely to be explained by the completion of phased automatic enrolment minimum contributions in April 2019.
However, the AE landscape seems to have stalled in more recent months, with the ONS also reporting employee and employer contributions to DC schemes dropped by 11 percent and five percent between the first and second quarter of 2020.
The Government also confirmed in late January that the earnings trigger for AE in a workplace would stay at £10,000 for the 2021/22 tax year.
This should allow more low-income workers to benefit from AE in the coming months which was welcomed by Becky O’Connor, the Head of Pensions and Savings at interactive investor, who noted the decision makes sense but additional problems need to be addressed: “At such a difficult time for people on low earnings and their employers, leaving the trigger for paying into a workplace pension unchanged makes sense.
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“The Government’s aim is to ‘bring as many people into automatic enrolment as possible who will benefit from saving, while avoiding the automatic enrolment of those unlikely to benefit.’
“So setting the trigger is a balance between taking income that people need now to meet current living costs and trying to ensure they have a chance of meeting future needs.
“Present needs are clearly high right now. However, the UK faces a retirement crisis, with people on low incomes now being among those at greatest risk of financial vulnerability when they reach retirement.
“The scale of this problem will only grow unless more people are brought into pension saving while they are earning. Losing ground on this progress could result in more poverty in retirement over the years.
“The problem of low earners who are above the trigger but below the Income Tax threshold and in net pay employer pension schemes – many of whom are women – remains unresolved. This group is auto-enrolled, but not receiving tax relief on their contributions and so missing out.
“The Government closed a consultation on this issue in October last year and is due to report on its findings.”
Today, similar sentiment was shared by the Investing and Saving Alliance (TISA), who are calling on the Chancellor ahead of the Spring Budget, which is due on March 3, to improve people’s long-term savings outcomes by regularly reviewing the AE framework.
They propose the first formal review should take place by 2023, with the membership body not believing the majority of individuals are saving enough to reach retirement with adequate savings.
Last year, TISA produced research which suggested that those who rent could run out of retirement savings 12 years before homeowners and this is likely to be exacerbated by the pandemic.
Additionally, furlough and employment issues are affecting many people’s pension contributions and savings plans according to their analysis, furthering the need for more help
TISA noted the Government confirmed in 2017 it planned to reduce the minimum age to 18 and remove the lower earnings limit, which is currently at £6,240, in the mid-2020s.
Now, TISA is calling on the Government to put these agreed outcomes into legislation so that young people can start saving earlier and to ensure low earners aren’t disproportionately impacted by the lower earnings band and they also believe that contribution rates must increase to 12 percent if individuals are to save enough for a decent retirement.
Renny Biggins, the Head of Retirement at TISA, commented on this: “To ensure that AE continues to be a success, we believe the framework needs to be reviewed periodically against a constantly changing backdrop including personal wealth, taxes and working patterns.
“For example, the number of multiple job holders is increasing. Many of these people who work multiple jobs do so part-time and are unlikely to reach the £10,000 threshold in a single employment to be auto enrolled. There is also the additional unintended consequence that many of the lowest earners will be hit by the net pay anomaly, meaning they will see their take home pay reduced by up to £64 a year.
“We urge the Government to undertake a formal review by 2023 and set a schedule for future reviews to ensure that AE is working for those it seeks to help the most.”
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