Government backs AE changes

The government has confirmed it will back proposals to expand pension auto-enrolment to include younger people and those on lower incomes.

The proposals are contained in a private members bill that grants two extensions to automatic enrolment, namely abolishing the Lower Earnings Limit for contributions and reducing the age for being automatically enrolled from 22 to 18 years old.

DWP support

Confirming its support, the Department for Work and Pensions said the intention was that the provisions would not result in any immediate change but would give the Secretary of State the powers to make the amendments.

It noted that a statutory requirement was in place to consult and then report on the outcome in order to inform the implementation approach and timing, before using the powers. Pensions minister Laura Trott has said that the measures would make a meaningful difference to people’s pension saving over the years ahead.

The proposals were originally contained in a policy review that was carried out in 2017 and published in a research briefing for parliament last year, with the government saying it was committed to implementing the changes.

MHM’s view

After 10 years of auto-enrolment, pension saving has increased at a tremendous rate – both in terms of the amount being saved and the number of people doing the saving.

With the expectation that younger workers will have to work longer before receiving their pension benefits in future, removing any barriers to saving at an early age seems sensible, and changing the somewhat arbitrary minimum age of 22 to 18 would be a good first step.

Although removing the Lower Earnings Limit for qualifying earnings (why not remove the Upper Earnings Limit, too?) will be an added expense that some businesses could do without, it would make the design and operation of workplace pension schemes much simpler.

It is also universally acknowledged within the financial services industry that saving only 8% of earnings is unlikely to be enough to deliver a meaningful pension in retirement. Basing this contribution rate on something closer to an employee’s total earnings is more meaningful and will be a significant boost for part-time workers and those on lower earnings.

If you would like to discuss options to review and improve your workplace pension scheme, do not hesitate to contact us on 01423 229029 or email david.hodgson@sandccarsalesharrogate.co.uk.