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Pension providers have called on the government to reform workplace pension entry rules after official analysis found hundreds of thousands of people could be brought into retirement saving if eligibility criteria were eased.
Ministers this week decided to retain a rule that restricts automatic enrolment for workplace pension schemes to those earning more than £10,000 a year.
Once auto-enrolled, a worker benefits from a minimum contribution by their employer of 3 per cent of pensionable salary, while the employee also pays in a minimum of 5 per cent.
Analysis published by the government this week showed that if this £10,000 earnings threshold were lowered to £6,240 — the lower band of salary where pensionable contributions are counted — then an additional 214,000 people would automatically be brought into pension saving, increasing total contributions by £124mn.
Keeping the threshold at £10,000 means only 17,000 additional savers would be brought into pension saving, the analysis found.
“Freezing the automatic enrolment threshold at £10,000 still means more workers will be auto-enrolled as their earnings increase above £10,000,” said Andrew Tully, technical director at Canada Life, a provider.
“However, it fails to address the major issue which is the many people — mostly women — who earn below £10,000, or have multiple jobs each of which are below £10,000, who aren’t auto-enrolled.
“We know automatically enrolling people in a pension has been a huge success. Now we need to extend that coverage to more people who are currently missing the opportunity to benefit from their employer’s pension contributions,” he said.
Scottish Widows, one of the UK’s largest pension providers, said the £10,000 earnings trigger should be removed.
“Keeping the trigger frozen at £10,000 will see more people auto-enrolled over time as earnings increase — but it will take a very long time for those whose earnings exceed £10,000 from more than one job to get some pension contributions from their employers. The trigger needs to go.”
The government said its decision to freeze the £10,000 trigger, rather than lower or scrap it, reflected “the key balance that needs to be struck between affordability for employers and individuals and the policy objective of giving those who are most able to save the opportunity to accrue a meaningful level of savings”.
The government added that workers who are not eligible to be auto-enrolled could opt to join a workplace pension scheme — and receive a mandatory employer contribution — if they earned between £6,240 and £10,000. Currently pension contributions for auto-enrolled workers are only required to be calculated on the portion of salary between £6,240, the lower earnings limit, and £50,270, the upper earnings limit.
In publishing the outcome of a review this week the government also said savings for auto-enrolled workers would “slightly increase” due to its decision not to raise the lower pensionable salary threshold from £6,240 to £6,396, to align with new national insurance contribution rates.
But one expert said this would only lead to an extra 9p a week for workers.
David Robbins, a director at WTW, a professional services firm, said that for affected workers, this meant that “only the first £120 of weekly earnings will be disregarded for pension contributions, rather than £123.”
“Where employers contribute the minimum 3 per cent, that’s an extra 9p a week of employer contributions. However, that effect will get bigger if the freeze is maintained year after year, particularly if inflation is high.”
Robbins said if earnings from the first pound counted for pension purposes, as proposed by the government in 2017, this would make a much bigger difference.
“Many large employers do this already but, for others, the change would increase contributions by half for someone working full-time on the minimum wage.”
The government has set out its aim of removing the lower earnings threshold, and reducing the entry age for automatic enrolment from 22 to 18, by the mid-2020s.
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