MPs launch inquiry into auto-enrolment contribution split
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The Work and Pensions Committee has begun an inquiry to explore how automatic enrolment can ensure “fair employer and employee contributions to secure a decent retirement income for low earners”. Evidence can be submitted until 26 October.
The committee stressed that despite auto-enrolment having been rolled out successfully, 15m working-age people are currently undersaving for retirement. MPs will now consider the balance of pension contributions between employer and employee.
The minimum employer contribution for employees earning at least £10,000 is set at 3%, while employees who stay enrolled must contribute 5% of pay, with a fifth of their contribution returned through basic rate tax relief. Pensions UK has been calling for 6% each to be contributed by employees and employers.
The inquiry comes ahead of final recommendations by the Pensions Commission on improving pensions adequacy for low earners. The government has ruled out changing auto-enrolment in this parliament, but some think the Commission’s recommendations could result in a timetable for future increases being drawn up.
“Last year we looked at the devastating effect of poverty on pensioners – it isolates, damages health and strips people of dignity. The Pension Commission’s finding that we’re on course for tomorrow’s pensioners to be poorer than today’s was shocking,” said committee chair Debbie Abrahams.
“This needs to be addressed, and in doing so, policymakers should be mindful of the burden any fix would place on low earners and employers. The committee will seek to inform the Commission’s work by looking at whether minimum auto-enrolment contributions should increase, and if so, when, by how much, and how the cost of any increase is shared,” she added.
MPs pointed out that while pension experts have been calling for higher contributions, those on low incomes are the most exposed to any potential increases.
On the other hand, they believe that small businesses have “already stretched resources”. Some employers have said any pension contribution increases would need to be compensated elsewhere, potentially through slower pay rises.
- To what extent do minimum AE contributions need to increase?
- How should any contribution increase be shared between employers and workers?
- What are the trade-offs for employers and workers between current needs and long-term savings? How might policy design help balance them?
- What would be an appropriate timetable for any increases?
- Is there also a case for reducing or removing the lower earnings limit on contributions and/or the earnings trigger for auto-enrolment?
- To what extent are employers and the public persuaded of the need for contributions to increase?
