The government has been called on to scrap two rules that prevent low-income earners from receiving workplace pension contributions.
In a submission to the government auto-enrolment review, the Tax Incentivised Savings Association pressed the government to "phase out" the qualifying earnings lower limit and the earnings trigger.
The qualifying earnings lower limit currently stands at £5,824. Earnings below that level are not considered when calculating how much is paid into the individual's work place pension.
Current minimum contribution rates are 2 per cent. If the individual earns £12,000 a year, they will only pay that two per cent on £6,176.
The earnings trigger, meanwhile, is the level at which the individual does not receive any auto-enrolment contributions at all. It currently stands at £10,000 a year.
That means if you earn less than £10,000 a year with any one employer - even if you earn more than that in total, through multiple jobs - you do not qualify to be auto-enrolled into a pension scheme.
Adrian Boulding, retirement director of Tisa, said both these rules needed to change.
"We believe the range of employees being auto-enrolled should be broadened by phasing out the qualifying earnings lower limit and earnings trigger, so ultimately all employees are automatically enrolled and all earnings will qualify for pension contributions," he said.
As inertia has proven successful to date, we need to apply that approach to the self-employed and develop a mechanism to collect contributions.Adrian BouldingMr Boulding also said the government needed to look at contribution rates, arguing that they would eventually need to be between 12 per cent and 15 per cent - far greater than the 8 per cent due to come into force in 2019.
Tisa urged the government to set out "a longer-term plan and timetable" to reach those levels of contributions.
The other main area Tisa's submission addressed was including the self-employed in auto-enrolment.
Mr Boulding pointed out that, of the nearly five million self-employed in the UK, only one in 10 contributes to a pension.
"Therefore, it’s vital this is addressed now rather than storing up the problem for further down the line. As inertia has proven successful to date, we need to apply that approach to the self-employed and develop a mechanism to collect contributions.
“Whilst National Insurance is currently a ‘hot potato’, a method of collection through the tax or National Insurance system is one potential solution," he said.
He said the lack of employer contributions for self-employed also posed a problem.
"Tax relief on its own will not be enough to motivate individuals, so we must look to deliver some form of incentivisation to achieve similar success levels," he said.
The government has said extending auto-enrolment to include groups currently not covered is a priority of the 2017 review.
However, it has stated it does not intend to make any changes to contribution rates in the current review.
The pensions industry, consumer groups and other concerned parties are broadly in agreement that the government should look at lowering the lower threshold and the earnings trigger, as well as looking to raise the contribution rates and including the self-employed.
Now: Pensions, Citizens Advice and the Work and Pensions select committee have all called for policies along these lines.
Royal London director of policy and former pensions minister Sir Steve Webb, meanwhile, has put forward a detailed proposal for getting the self-employed contributing to a pension.
It would involve the government raising class four National Insurance contributions – which apply to self-employed people earning more than £8,060 a year – from 9 per cent to 12 per cent.
People would then be given the option of letting that extra 3 per cent go to Treasury, or allocating it to a personal pension scheme of their choice.
If they opted to channel it into a pension, they would only be able to access the money at retirement if they contributed an additional 5 per cent into that pension scheme.
However, since Sir Steve made that proposal, chancellor Philip Hammond has announced, and then performed a U-turn on, a policy that would have raised National Insurance contributions for the self-employed.
james.fernyhough@ft.com
