Chairman of the Work and Pensions select committee, Frank Field, has criticised the government’s auto-enrolment review, saying that it lacks boldness.
The Department for Work and Pensions (DWP) announced yesterday (18 December) that is making changes to the age for auto-enrolment of workers into workplace pension schemes from 22 to 18-years-old, and changing the way pension contributions are calculated.
A solution to include self-employed workers in workplace pensions, however, was postponed, since the government wants to test possible solutions and legislate on this by 2022.
Mr Field said: “Auto-enrolment was a bold leap by the government which has been hugely successful in getting millions of people to start saving in pensions.
“But this review shows none of that boldness in announcing a few minor tweaks and tentative pilot schemes.”
Introduced in 2012, auto-enrolment has now reached nine million people, with opt-out rates of less than 10 per cent.
Mr Field added: “The analysis accompanying the report shows 12m people are under-saving for retirement, including a growing army of the self-employed.
“It is time for the Government to revert to bold type in building on its past successes.”
According to David Gauke, secretary of state for work and pensions, the current “government has rebuilt the UK’s savings culture”.
He said: “For an entire generation of people, workplace pension saving is the new normal. And my mission now is to make sure the next generation of younger workers have the same opportunities.”
According to the auto-enrolment report, the under-savers represent 38 per cent of the working age population.
The DWP said, however, that taking account the planned increases in auto-enrolment contribution rates, some 5.7m are ‘mild under-savers’.
It added: “If automatic enrolment had not been introduced, an additional 2m individuals would now be under-saving.”
Currently the auto-enrolment minimum total contribution is 2 per cent - 1 per cent each from the employee and employer.
From April 2018, the minimum total contribution will increase to 5 per cent, with the employee paying 3 per cent.
One year later, it will increase again to 8 per cent, with the worker paying 5 per cent.
Looking at under-saving by income level, the vast majority of those individuals - around 10.4m (87 per cent) - earn more than £25,000 a year. Around 1.6m (13 per cent) earn below £25,000 a year.
In its own report on auto-enrolment, published in May 2016, the Work and Pensions select committee considered the government’s review to be an ideal opportunity for the DWP to consider how to build on the policy success.
It said: “The review should consider how to increase contributions beyond the statutory minimum of 8 per cent and how to bring more low-paid and self-employed people into auto-enrolment.”