Actuaries body calls for gov’t to review AE policy
The next government must undertake a review of the current auto-enrolment policy following May’s general election, the Association of Consulting Actuaries has said, stating that “targeted financial incentives” are needed to deliver the desired policy outcome.
The review would assess whether some enhancements are needed so employers and employees can meet the sharp cost of increases in minimum pension contributions from October 2017.
Aca’s report expressed fears that low earnings in small firms could cause financial difficulties, with employee opt-outs also rising markedly when minimum auto-enrolment contributions increase from 2 per cent of band earnings to 5 per cent in 2017 and 8 per cent a year later.
A survey from the industry body gathered responses from 414 smaller employers with 249 or fewer employees.
It found that low pension contributions are a feature of those newly enrolled into workplace pensions, with the median employer contribution being between 1-3 per cent of earnings, while employee contributions generally at an even lower level, between 1-2 per cent of earnings.
Those previously enrolled into pension schemes ahead of auto-enrolment – a minority in smaller employers – have generally retained median employer contributions of 4-5 per cent of earnings with employee contributions of 3-4 per cent of earnings.
Aca said it is concerned that the challenge for smaller employers is particularly great, due to low earnings in the sector, the short period many firms and their employees will have between auto-enrolling employees in 2015 and 2016, and the big hikes in minimum contributions sector for October 2017 and 2018.
It suggested that if the party or parties forming the next government decide to make further reforms to pension tax relief, they should consider earmarking some of the changes made to national insurance reductions for example by raising the contribution threshold.
Futhermore, Aca said it is also close to publishing a paper suggesting radical reform of the ‘broken’ pension taxation regime as a whole, which it stated successive governments have meddled with over the last decade to the point where few understand the regime’s complexity.
David Fairs, the organisation’s chairman, said that it supports auto-escalation and extension of contributions to all earnings up to a ceiling, however more needs to be done.
“In the near-term government may need to be pragmatic and consider some targeted financial incentives to help deliver the desired policy outcome of wider and deeper pension coverage in smaller firms.”
ruth.gillbe@ft.com
