Auto-enrolment bill has pensions minister’s backing
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The Department for Work and Pensions is supporting a private members bill that would give the government powers to expand auto-enrolment so people start saving from age 18 and contributions are paid on the first pound earned.
A private members bill by Conservative MP Jonathan Gullis is seeking to legislate for long-promised reforms to auto-enrolment. It proposes to give the secretary of state powers to amend the minimum age and lower earnings limit. The government will have to consult on the approach and timings before the powers in the bill can be used.
Abolishing the lower earnings limit of currently £6,240, so contributions are made on the first pound earned, and reducing the age for being auto-enrolled to 18 from currently 22, would “make a meaningful difference to people’s pension saving”, said pensions minister Laura Trott.
Gullis said extending auto-enrolment to those aged 18 and over was “a no-brainer" and will make saving the norm for young adults.
Proposals to scrap the lower earnings limit and reduce the minimum auto-enrolment age to 18 were first made in 2017 by the Automatic Enrolment Review. At the time, the government said it would implement the proposed changes in the “mid-2020s”.
The Pensions and Lifetime Savings Association and the Association of British Insurers have both backed the bill. The PLSA expects the changes to make it into law at some point over the next year.
Nigel Peaple, director of policy and advocacy at the PLSA, while supportive of the two measures in the bill, has repeated the PLSA's call to increase minimum contribution levels to 12%.
“In order for savers to reach an adequate income in retirement, further increases should be undertaken over the next decade so that AE rises from an 8% pension contribution today to around 12% in the early 2030s – split 50/50 between employers and employees,” said Peaple.
The Investing and Saving Alliance also wants to see contributions rise to 12% split equally, but with flexibility for those who cannot afford paying in this level.
The Investing and Saving Alliance also wants to see contributions rise to 12% split equally, but with flexibility for those who cannot afford paying in this level.
Towards the end of his tenure, former pensions minister Guy Opperman had voiced support for raising contributions to 12%, but Trott has so far not made public comments on the subject.
Yvonne Braun, the ABI’s director of policy, long-term savings, health and protection, said the association welcomes the return of the bill.
"The success of [auto-enrolment] over the last 10 years is down to consensus between government, political parties, industry and employers, and we stand ready to work with Jonathan Gullis MP and all other partners to build on this over the next decade,” she added.
The next step in the journey to the reforms in the bill should be to agree a timetable for implementation, said Kate Smith, head of pensions at provider Aegon, and urged the government to start phasing this in from April 2024 as the next general election is due by January 2025.
Removing the lower earnings limit should, however, happen in phases, she argued: “To avoid an overnight change, it will be important to introduce this gradually over a number of years, particularly as we emerge from the current cost of living crisis. Otherwise, someone earning £12,480 would see their contributions double overnight.”