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Former pensions minister Sir Steve Webb has thrown his weight behind calls for a timetable for auto-enrolment increases, calling the lack of action “terrible”, after Torsten Bell revealed that auto-enrolment rates would not change during this parliament.
Pensions minister Torsten Bell admitted on Wednesday that “we’re not going to be raising rates in this parliament”, speaking at an event by the Institute for Fiscal Studies.
Sir Steve, now a partner at consultancy LCP, also at the IFS event, seized on this statement, urging the government to heed an IFS recommendation for a timetable.
“We ain't going to get anything for the next four years... That's terrible. That is really, really very, very seriously bad news,” he said, accusing the government of considering the adequacy part of its pensions review an “afterthought”, which had to be fought for to even take place following the initial part focusing on growth.
“The best hope we've got is a timetable,” he said, suggesting businesses would accept higher contributions given sufficient preparation time.
“If only in 2008 we'd gone beyond 8%, nobody would have given a damn about contribution rates in 2019. You could have done almost anything, as long as there's enough warning,” Sir Steve, who was in the coalition government from 2010 until 2015, added.
It would be credible for the current government to say that employers cannot be burdened further now after being “whacked” with a £25bn rise in national insurance, he conceded, “but in three years’ time, five years’ time, we will do this, and we'll get to the right level and let's just have a timetable".
Sir Steve also called for cash buffers, a product trialled by Nest who called it ‘sidecars’, whereby low earners save into a cash account which overflows into their pension account once it reaches a certain level.
“I think they’re a different answer to the IFS question, which is, ‘Oh my goodness, low-paid workers are really up against it, we can’t take more of their money for pensions’. Maybe we can, if some of it goes into the cash buffer, which is then available to them for short-term savings, crises etc, and then you don’t have to be quite so... cautious about even asking lower paid people to pay more .”
The IFS proposed higher auto-enrolment contributions for people on median earnings and above, but Sir Steve was critical of adding complexity to auto-enrolment by creating such a threshold.
UK is falling behind international peers
The adequacy review will be announced by chancellor Rachel Reeves in her Mansion House speech on 15 July, the Financial Times reported on Friday.
Ahead of this, in his speech at the IFS event, Bell made reference to longevity risk and pensioner inequality, rather than levels of saving. However, with pending auto-enrolment reforms, recommended in 2017, still not implemented and no plan for raising the current low contribution rates, the industry is losing patience. Damon Hopkins, head of DC workplace savings at consultancy Broadstone, noted that Australia has just increased the minimum employer contribution rate to 12% compared with the UK’s 3%.
He said: “Auto-enrolment rates look set to be a key feature of the review to ensure workers are paying enough into their pensions to secure a decent standard of living in retirement.”
Although increases are unlikely to come in soon, he said employers will need to start considering how they manage potential increased pension cost in the medium to long term.
State will need to pick up the bill of current inaction
As a rise in pensioner poverty increasingly looks like it will only be a matter of time, the role of the state could increase rather than diminish.
Hopkins said: “It will be interesting to see how the review focuses on the state pension. For millions of pensioners, the State Pension is the bedrock of their retirement income and any changes to either the triple lock, an acceleration of state pension age up-ratchet or moves towards means-testing would be highly controversial.”
Sir Steve, who brought in the new state pension that increased pension levels particularly for women, made an ironic self-reference at the IFS event, saying that “pensions reports have this slight knack of saying the triple lock is awful and people in polite society shouldn't talk about it. And the second half of the report says, ‘Oh my God, nobody's saving enough, nobody's going to be saving enough for a long time.’ And I kind of think, gosh, isn't it a good job somebody did something about the level of the state pension?”
How much runway should employers get for higher AE levels?
