Some of the UK pension industry’s largest players have joined forces to demand an expansion of auto-enrolment to capture young people, part-time workers and those on lower incomes.
Master trust Now Pensions and the Association of British Insurers are among nine organisations to have lobbied Chancellor Rishi Sunak to follow through on recommendations made by the Department for Work and Pensions in 2017.
Employers must currently enrol any staff into a pension scheme who are aged between 22 up to the state pension age, and earn over £10,000 per year, £833 per month, or £192 per week. Both employers and employees must pay into the scheme.
The nine pension companies, along with thinktank Onward, have called for a reduction in the age that people can start to save via auto-enrolment from 22 years old to 18.
They have also urged Sunak to phase out the £6,240 lower earnings limit. This is the earnings threshold that allows employees to qualify for certain state benefits, including the basic state pension.
The letter, whose signatories also included Standard Life, Legal & General Investment Management and Scottish Widows, called for the widening of auto-enrolment by the mid-2020s. The Treasury has been contacted for comment.
These proposals fall in line with the DWP’s own 2017 report, which recommended auto-enrolling workers from the age of 18 and abolishing the low-earnings threshold.
The lower earnings threshold harms women
Expanding auto-enrolment would help those on the national living wage increase their final pension pot by up to £93,989, amounting to a potential 60 per cent rise, according to Onward.
For those aged 23 and over, the national living wage will rise to £9.50 per hour as of next month, up from its current level of £8.91 per hour.
The average young worker's pension pot would rise by up to £20,267 with four additional years of saving, the thinktank said.
In their submission to the Work and Pensions Committee inquiry on pension freedoms, published on February 24, Aviva praised the rollout of auto-enrolment, highlighting the approximate 10mn people now saving towards retirement as a result of the scheme.
The financial services group, which operates a master trust, warned however that the initiative “has not meant that people are necessarily saving enough for their retirement, nor does it mean that all groups of workers have benefited equally”.
“In particular, the young, the low paid, part time workers and women have not fully reaped the benefits,” Aviva added.
It advocated for the removal of the lower earnings threshold, suggesting that it particularly disadvantages those with more than one part-time job, a group that is disproportionately dominated by women.
Between October to December 2021, 38 per cent of women in employment were working part-time, compared with 13 per cent of working men, according to the Office for National Statistics.
An employee working two days on the National Living Wage would currently only receive an employer pension contribution of 15p into their pension pot, or £7.80 per year.
This is because the first £6,240 of annual salary, or £120 a week, is not pensionable under auto-enrolment. Therefore, the lowest paid have the smallest proportion of their wage paid into their pension.
The self-employed also need support
While there has been some political interest in supporting efforts to expand the scheme, the DWP has been unable to meet these demands.
In January 2022, Conservative MP Richard Holden introduced a private members’ bill to extend auto-enrolment to younger and low-paid workers. It has yet to receive its planned second reading.
However, in the same month, pensions minister Guy Opperman disappointed some in the pensions industry when he declined to offer a timetable on the scheme’s expansion.
In February, Opperman admitted that the auto-enrolment reform bill will not get through parliament in time for the Queen’s Speech in May.
In addition to supporting the scheme’s expansion, the ABI - in its submission to the Work and Pensions committee inquiry - also highlighted “the problem of not enough self-employed people saving into pensions”, caveating that this may require a separate system. Self-employed workers do not fall under the scope of auto-enrolment.
Long-term participation in pensions among the self-employed has declined over recent years, falling from 21 per cent in 2009 to 2010 to 16 per cent in 2019 to 2020.
The ABI called for the provision of more guidance for those moving between employment and self-employment, including advocating the benefits of pension saving.
It also recommended increasing self-employed workers’ National Insurance Contributions from 9 per cent to 12 per cent, putting them in line with employees.
Will Tanner, a director at Onward who also served as former prime minister Theresa May’s deputy head of policy, said that building out auto-enrolment could help the government achieve one of its flagship policy objectives.
“Extending auto-enrolment to younger and low paid workers would not just help individuals and their families save for the future, it would generate billions of pounds that could be invested in the government’s mission to level up the UK,” he said.
Alex Janiaud is deputy editor at FTAdviser's sister publication Pensions Expert
