Employees who have opted out of their workplace pension during the coronavirus crisis should be encouraged back into saving more quickly than usual, MPs have said.
The Work and Pensions committee urged the Pensions Regulator (TPR) to consider helping such workers re-enrol sooner than the current three-year timeframe under auto-enrolment rules.
The committee believes this is important as many savers may have left their auto-enrolment pension during the crisis as a result of suffering financial difficulties.
In its 111-page report, published this morning (June 22), the committee heard evidence from David Fairs, executive director of regulatory policy, analysis and advice at TPR, that contributions paid during the pandemic could end up being particularly valuable for savers.
This is because contributions made when market values are low could see a greater increase in their value than usual if markets return to normal levels.
The report stated: “Employers cannot legally be encouraged by their employer to opt out of their pension contributions, but many people may opt out voluntarily if their incomes fall because of the pandemic.
“We recommend that the Pensions Regulator consider whether employees who do opt out during the pandemic should be helped to re-enrol earlier than would happen normally under auto-enrolment.”
Tom Selby, senior analyst at AJ Bell, agreed with the committee’s recommendation. He said: “The Covid-19 pandemic has placed huge strain on household incomes and it is inevitable some people struggling to make ends meet will have felt it necessary to opt out of their workplace pension. It is crucial these people are nudged back into saving for retirement as soon as possible.
“Under current rules anyone who opts out will be re-enrolled automatically three years later. However, three years of missed contributions is not immaterial – someone earning £30,000 who had been auto-enrolled at the minimum level and chose to opt-out would have £5,702 less going towards their retirement, including £2,138 in employer contributions and £713 in tax relief.”
The report also warned the Covid-19 pandemic had created new opportunities for pension scammers.
While it praised TPR, the Financial Conduct Authority and the Money and Pensions Service for their alertness and quick response, the committee urged regulators to work together to determine whether their communications had been effective.
The committee stated: “They have tried proactively to warn pension savers about the risks they face. But, in a period of many competing messages from public bodies, we are concerned that their messages may not reach enough of the people who are vulnerable to scams.
“We urge the regulators to work together to monitor the effectiveness and reach of their communications.”
The committee said it intends to undertake detailed work on pension scams in the near future.
Mr Selby said: “Individuals face a clear and present danger from pension scammers, particularly given the uncertainty and volatility created by Covid-19. These scams can range from early access ‘offers’ to exotic investment offers promising double-digit returns.