TISA: Give employer contribution to low earners who opt out

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Those earning less than £17,500 should have the option to opt out from their personal auto-enrolment contribution and still receive the employer contribution, the Investing and Saving Alliance has said.

Making this change would help prevent the least financially secure from increasing personal debt levels or foregoing household essentials in order to remain opted into a workplace pension, TISA says. It points out that research has shown that lower earners may struggle to pay their personal contributions but that this does not translate into opt-outs, suggesting the financially insecure are increasing personal debt levels instead.

In a first paper published in February, the association concluded that for a median earning household, a contribution level of 12% of whole salary might enable families, when combined with full state pensions, to achieve a moderate retirement.

The proposals published on Monday recommend that to reach the optimal 12%, contributions should be split evenly between the employer and employee and should be phased in over a period of six years at a rate of 0.5% per year, starting in 2023.

It also wants to see the net pay anomaly corrected through an HMRC end of tax year reconciliation progress using RTI data.

Renny Biggins, head of retirement at TISA, said: “AE has been a bigger success than anyone could have imagined but, nearly 10 years on from its inception, changes need to be made to ensure it continues to develop and serve hard working people in the UK."

The Pensions and Lifetime Savings Association is lending its support to the proposals.

“We support TISA’s contribution to this important policy area, which builds on similar recommendations in the PLSA’s 2018 'Hitting the Target' report, including proposals to reach 12% in small and gradual increments and to achieve a 50/50 split between employee and employer contributions," said director of policy and research Nigel Peaple.
“Given the huge economic challenges of Covid-19, it is right to take up a gradual, modest and long term approach to the increase to ensure everyone will eventually have an affordable route to having an adequate income in retirement," he added.