Scottish Widows is calling on the government to go further in helping low earners save for their retirement.
Peter Glancy, head of policy, pensions and investments at the provider, told FTAdviser that “there is merit in removing the earnings trigger of £10,000, potentially allowing those who earn below this amount to opt out of the employee contribution only”.
This would mean that savers would continue to see the employer contribution, currently set at a minimum of 1 per cent, be included in their pension pots.
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.
The Department for Work and Pensions (DWP) published its review of auto-enrolment on 18 December, where it announced that the minimum age for workers to be included into workplace pension schemes will be reduced from 22 to 18-years-old, and that it will change the way pension contributions are calculated by mid 2020s.
The first proposal “could see retirement incomes for those wishing to retire at age 60, rise by about 15 per cent,” Mr Glancy explained.
He said: “Women are more likely to take time out from the workplace to bring up children or take care of elderly relatives and where this is the case, the extra four years could lead to an even greater improvement to retirement provision.”
The second proposal – which means that pension contributions will be calculated from the first pound earned, instead of the £10,000 lower earnings limit – “means that someone on or around national average earnings throughout their career could see their retirement income rise by around 33 per cent,” Mr Glancy added.
He said: “Those on the lowest salaries will see the most significant uplift in retirement savings from this change.”
However, Mr Glancy would like to “see a clear signposting beyond the current auto-enrolment contribution rates of 8 per cent up to 12 per cent”.
Kate Smith, head of pensions at Aegon, agreed with this view.
She said: “Despite plans to make more earnings pensionable, an 8 per cent contribution won’t be enough for most employees to build up adequate lifetime savings.
“The government should bring the proposed changes forward to the early 2020s, and start looking at increasing the minimum contribution rates ready for implementation in the mid-2020s.”
According to Ms Smith, “improvements to auto-enrolment are at least seven years away and it’s likely there will be a lot more stakeholder discussion along the way”.
She said: “Many employers already go the extra mile and pay higher contributions than the minimum, basing contributions on the first pound, often with no upper salary limit and including under 22s.
“Unfortunately, this isn’t universal and advisers should be talking to these employers now, encouraging them to review their pension scheme design and get ahead of the game by implementing the proposals sooner. Every year of pension saving counts.”