Dan Jones  

Time to throw caution to the wind on auto-enrolment

Dan Jones

Dan Jones

You can picture the scene on the morning of 3 January. The first working day of 2017. Most of us easing our way back into things, meaning little had happened of note. Even FTSE 100 chief executives were still 24 hours away from the point in the year at which their earnings pass the average UK salary.

And yet, by then, the first pensions controversy of the year was already starting to erupt. A Ways to Save in 2017 infographic published by the Treasury over the holiday period was spotted by some eagle-eyed social media users, who were quick to point out it included seven Isa variants, but made no mention of pensions.

Truthfully, I’d bet the error was an unintentional one, made by someone in the lower echelons of the department – although the fact the leaflet is labelled “version seven” suggests it wasn’t entirely the result of carelessness.

The reason the story blew up has less to do with the infographic in and of itself, of course. It’s because it appeared to confirm existing suspicions about the government’s savings priorities. 

After the let’s-run-this-up-the-flagpole pensions Isa speculation, and the subsequent introduction of the Lifetime Isa, those misgivings exist for good reason. We’re all aware of the benefits of a shift from an exempt, exempt, taxed regime to a taxed, exempt, exempt from the point of view of an Exchequer looking to boost short-term revenues.

So all in all, not the best start to the year from the Treasury. Perhaps it really is pulling in a different direction from the Department for Work and Pensions (DWP) on savings policy. But if so, the latter has the opportunity to get its own back later this year in a way that should please most of those in favour of the current regime.

For now we should put aside thoughts of shifting to a pensions Isa system, although that may happen in time.  The most significant decision over the next 12 months won’t be to do with the state pension age either. It will be how to proceed further with workplace pensions via a long-planned 2017 review of auto-enrolment.

So far, the programme has progressed remarkably well. Almost seamlessly, in fact. Seven million enrolled across 340,000 employers, with more than 650,000 additional businesses set to follow this year. 

The most significant development, though, is to do with opt-out rates. As Money Management’s annual survey illustrated in January, the proportion of employees opting out remains lower than forecast, even as smaller businesses joined up last year. And these numbers are falling: even Nest, which added 1.4 million new members in the year to 30 November, saw its opt-out rate drop from 8 per cent to 7 per cent.

But while the auto-enrolment building blocks are now in place, constructing the higher levels will prove a more difficult balancing act. The government’s review of the project will have to decide on two particularly uncertain issues: how to include the self-employed, and how – and when – to increase contribution rates beyond a current schedule that calls for a rise from 2 per cent to 5 per cent in 2018, then to 8 per cent in 2019.