Industry split on AE reform timetable

Industry split on AE reform timetable

Experts are split on whether increasing auto enrolment contributions to 12 per cent can be achieved by the end of the decade.

Giving evidence to the Work and Pensions committee this morning (March 23), Sue Ferns, senior deputy general secretary of the Prospect Union, said she supports the proposals to increase minimum contribution rates to combat the problem of "inadequate pensions savings".

Currently the minimum auto enrolment contribution to an employee’s pension savings is 8 per cent of qualifying earnings - of which employers must pay at least 3 per cent and the employee the remaining 5 per cent.

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“[A contribution rate of 12 per cent] is really the minimum level [to save] for an adequate income in retirement," Ferns said, adding that she would like to see a 2:1 ratio between employers and employees' contributions.

"This is the only way to get to 15 per cent," she said.

“I accept there will be different views on that, but we have to address this problem of people not having adequate pensions.”

Sophia Dimitriadis, senior economist at the International Longevity Centre, agreed, saying minimum contribution rates need to change this decade because there is “such an urgent need”.

Nigel Stanley, chair of Nest’s members’ panel said he did not want to argue against a rapid timetable as he is in favour of it, but admitted the difficulty was getting the political buy-in for it to be a priority.

“You need to build a consensus amongst politicians, employers, and workers, consumers, infrastructure to deal with it,” he said, which can be difficult when there are other things to focus on that are less reliant on consensus.

“This is a big change in the pensions system…but better to start doing it slowly than putting it off because it's too difficult.”

However Christopher Brooks, head of policy at Age UK, said he doubts it can be achieved this decade as it would be really difficult to get employers to accept it.

He said he accepts there is never a good time to do it, but clarity is essential.

“It takes time to build a consensus to make that a reality…that’s why we need a timetable, we need a clear vision of what the government wants to achieve and a timetable for achieving it.”

Ferns added: “This may be ambitious but we need to do this, we need to deliver those results otherwise we will continue to have the problem of inadequate pensions savings for generations to come.”

In January, Conservative MP Richard Holden tabled a private members’ bill in the House of Commons looking to lower the age threshold for auto-enrolment from 22 to 18, and there were rumours that the £10,000 earnings trigger would be scrapped in line with proposals from think tank Onward, with which he had previously worked.

However, the bill, which was published on February 25, restricts itself to the proposals outlined in the government’s 2017 auto-enrolment review.