Chancellor George Osborne’s decision to save £840m in tax revenue by delaying auto-enrolment has paved the way for a change to the tax regime, the chairman of the Association of Consulting Actuaries has said.
David Fairs said: “I think we stand at a point of inflexion. Working patterns and social norms are changing, and the pace of change seems to be ever-increasing. And that is why we need a stable financial framework for savings in retirement.
“Each alternative that we have looked at – flat rate, Pension Isa or further reduced allowances – brings new challenges. At the ACA we have no preference for a particular new tax regime, provided incentives for employees and employers are sufficient. We can see the benefits of each option, but we can also see the challenges.”
Last week, Mr Osborne announced that the next two phases of minimum contribution rate increases will be aligned to the tax years.
He said this would help businesses with the administration of auto-enrolment.
Under the previous AE plans, minimum contributions would have risen from 2 per cent of qualifying earnings to 5 per cent from October 2017 and to 8 per cent from October 2018.
Now the rise to 5 per cent will take effect from April 2018 and to 8 per cent from April 2019.
Morten Nilsson, chief executive of Now:Pensions, said: “On face value, a delay of six months on each rate rise seems inconsequential, but for an average earner, they could miss out on £770 each of pension savings.
“Moving the goalposts causes unwanted and unnecessary confusion for employers. It also gives entirely the wrong message to savers.”
The decision to make the administration of auto-enrolment easier for businesses could have been sparked by concerns that the industry would be unable to cope with their looming staging requirements.
It has been claimed that between January 2016 and March 2018, the number of employers reaching their staging date will go up tenfold, reaching an average of more than 100,000 a quarter, and more than 200,000 in the first few months of 2017.
Adviser view
Tom Binstead, an executive consultant with Gloucestershire-based Kellands, said: “The delay is a good thing. At the moment, contributions are very low and employees are more than happy to pay in.
“I still think that when the contributions go up to a higher amount, employees may find this more difficult to maintain, so a delay, however short, may help to keep more people in the pension schemes.”
