Industry figures have queried how the government plans to go about widening auto-enrolment to include more self-employed workers and those who hold multiple jobs.
In a ministerial statement on the forthcoming AE and annual thresholds review, scheduled to take place in 2017, Richard Harrington, secretary of state at the Department for Work and Pensions, spoke of wanting to increase the number of individual savers paying into workplace pensions.
“In doing this we will look at […] the needs of those not benefiting, for example employees with multiple jobs who do not meet the criteria for [AE] in any of their jobs”, Mr Harrington explained.
Currently, the self-employed can only join a workplace pension through the National Employment Savings Trust (Nest), and multiple jobholders can be enrolled if they are deemed to be eligible jobholders (for example, earning more than £10,000) by their employers.
While the number of self-employed people to have enrolled has risen, the participation of the self-employed in a given pension scheme has fallen from around 20 per cent in 2011/2012 to 14 per cent in 2014/2015, according to the Department for Work & Pensions’ 2016 Automatic Enrolment Evaluation report.
But with no clear view of how the government plans to create a simple system through which to encourage more self-employed people to save into a workplace pension, the plans have been met with scepticism among those working in and around the pensions industry.
“The only way you could do it realistically is to enforce a different national insurance rate. For example, making the self-employed pay x per cent more than the current rate, and then diverting that into a separate plan,” said David Newman, head of pensions at Close Brothers Asset Management.
“The trouble is, it doesn’t give [the self-employed] quite the same incentive because they haven’t got an employer to pay in.”
The earnings trigger for AE is frozen at £10,000, with no future plans to lower the figure as part of the 2017 review. Allan Maxwell, chartered financial planner at Glasgow-based Corporate Benefits Consulting, believes earnings limits should be abolished altogether.
“If you want to encourage people to save, you’ve got to make it easier for them and not put barriers in their way. I think the cost of these barriers, and the administrative cost for the employers as well, is huge.”
But Chris Daems, director of Cervello Financial Planning, said neither the regular nor lower earnings band (which is set at £5,824) need changing. Mr Daems explained: ‘It’s important to remember that while £10,000 is the trigger for employees to be automatically enrolled, most low earners opt-in and receive an employer’s contribution. It’s only those who earn less than £5,824 who aren’t entitled to employer contributions under AE law.”
Mr Harrington’s statement on AE also mentioned a potential revision of the 0.75 per cent charge cap for employers, which could see transaction costs included in the cap.
Corporate Benefits Consulting’s Mr Maxwell stated that “the charge cap should cover all costs”.
“Having said that, though, we do need to make sure that people can do this on a commercial basis because otherwise you’ll get everyone shutting up shop and the whole thing will collapse,” he said.
Cervello Financial Planning’s Mr Daems added: “Two of the reasons pensions are often perceived as poor value is clarity of costs and the level of charges. Therefore to ensure that we deliver clarity and a fair cost, we should ensure the 0.75 per cent cap includes all costs – with no hidden additional costs – and that the level of charges remain as low as they are now.”
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