The industry has expressed disappointment after the pensions minister failed to set out a timetable for expanding auto-enrolment, as suggested by a 2017 review.
Comments made by Guy Opperman in Parliament this morning (January 26), in a debate on pensions automatic enrolment, were described as “hugely disappointing” by industry commentators.
The debate was called for by fellow Conservative MP Gareth Davies and discussed potential extensions to auto-enrolment, as suggested in a review in late 2017 by the Department for Work and Pensions.
This recommended that workers should be auto-enrolled from the age of 18 as opposed to the current age of 22, and the low-earnings threshold should be abolished.
In the debate, Davies said: “When a policy has such an impact, is so successful, it is right that we debate and discuss how we can build on that success.
“I believe that of all the options the minister has in front of him, expanding this policy to those aged 18 to 21 years old will have the most material impact for our country.
“Automatic enrolment should be extended as a priority to young workers because for them, that potential compound interest is greatest, the pressures of demographic change are most acute, the challenges of mental health and climate change are especially relevant and the need for greater financial inclusion is most pressing.”
Davies pointed out that only 18 per cent of eligible 18-21 year-olds are currently enrolled in a workplace scheme, despite this being the age group that would benefit most from compound interest.
MPs from several parties spoke in support of the proposal, including shadow pensions minister Matt Rodda, who pointed to research suggesting that employees would be able to save an extra £2.6bn per year “if the earnings trigger was scrapped”.
Rodda asked Opperman to give an update on what stage the government was at in deciding whether to reform auto-enrolment.
In response, the minister said the government had committed to introducing the changes in phases, but would not be drawn on precisely when they would begin to take effect.
“Clearly, events have got in the way… over the last four or five years, but the practical truth is that it is the unquestioned commitment of the government that we will bring forward new measures in respect of the lower earnings limit and [age] threshold without a shadow of a doubt,” Opperman said.
“The way in which we do that and the phasing of that is still a matter of ongoing debate within government. People above my paygrade have to make decisions on that. It is obviously dependent on other pieces of legislation and other considerations.”
Earlier this month, Conservative MP Richard Holden tabled a motion in the House of Commons aimed at expanding auto-enrolment in line both with the DWP’s recommendations and those made by think tank Onward, which proposed a phased approach to the changes.
Under the proposals, the earnings trigger and age limit would be abolished in 2023, but the qualifying earnings limit would be reduced gradually and not be entirely removed until 2026.
Opperman noted the cross-party support for the bill, but said that what would go into the next Queen’s Speech - due in May - was not his decision.
'A huge disappointment'
Responding to the minister’s comments, former pensions minister and LCP partner Sir Steve Webb branded them a “huge disappointment”, since despite four years having gone by since the DWP’s report, “we are still no nearer to seeing these modest changes implemented.
“The government needs to realise the urgency of this issue. A whole generation of people who missed out on [defined benefit] pensions and are only building up modest [defined contribution] pensions could be set for a miserable retirement unless the pace of change is increased,” he said.
“Good intentions are no longer enough, we need action”.
Kate Smith, head of pensions at Aegon, welcomed the fact MPs were debating the issue, which she said demonstrated “that there continues to be cross-party support for auto-enrolment, almost 10 years after it was first introduced in 2012. This is an amazing achievement in itself.
“Implementing the 2017 review recommendations and extending its reach to include 18 to 21 year-olds will go some way to support the government’s levelling up agenda. This allows this group to start saving earlier, and benefit from a valuable employer pension contribution,” she continued.
“For this reason we’re supportive of this happening as soon as possible along with a plan to base auto-enrolment contributions from the first pound of earnings.”
Benjamin Mercer is a senior reporter at FTAdviser’s sister publication Pensions Expert
