AE review prompts calls on contributions and self-employed

The review focuses on three main areas: strengthening the engagement of individuals with workplace pensions; ensuring coverage extends to all for whom it makes economic sense to save into a pension; and investigating the appropriate level of contributions.

A document outlining the review’s “initial questions” also mentions wider review activity that will be examined, which includes questions about the lowering and extension of the charge cap.

Industry heavyweights have been appointed to lead the different areas of the review. Ruston Smith, trustee director at mastertrust the People’s Pension, will focus on engagement, Jamie Jenkins, head of pensions strategy at provider Standard Life, will focus on coverage, and Chris Curry, director of the Pensions Policy Institute, will focus on contributions.

The other members of the advisory group are:

• Carl Emmerson, deputy director, Institute for Fiscal Studies
• Jane Vass, head of public policy, Age UK
• Neil Carberry, director for people and skills, Confederation of British Industry
• Linda Ellett, partner, KPMG – tax and pensions practice
• Nigel Stanley, chair, Nest members’ panel
• Jocelyn Blackwell, trustee director, Now Pensions
• Judith Hogarth, pensions policy for EEF, the manufacturers’ organisation

Increasing contributions

Steve Webb, director of policy at provider Royal London, said the minimum contribution should be raised beyond the 8 per cent total it will reach in April 2019 in order to ensure savers have enough money in retirement.

“All [the review’s terms of reference] is saying is, ‘We’ll gather evidence’, which isn’t good enough,” he said.

The terms of reference states its aim with regards to contributions as being “to strengthen the evidence around appropriate future contributions into workplace pensions after April 2019, recognising the need to understand how individuals and employers will respond to the planned increases”.

It adds that the government does not expect to make policy recommendations on contributions this year.

Despite others agreeing contributions should be raised, experts said a delay to allow the existing rises to play out first would be wise.

Nathan Long, senior pensions analyst at investment platform provider Hargreaves Lansdown, said the reaction of savers to the rise would dictate what happens next.

“If we get through April 2019 and we’ve had increased contributions and opt-outs stay at about the level they are now, you could expect contributions to go up. If you start to see opt-outs, that completely changes the game,” he said, adding that it could lead to the introduction of compulsory pension saving or simply a slower rise in contributions.

Research from the Pensions and Lifetime Savings Association, released late last year, indicated minimum contributions should be raised to at least 12 per cent of qualifying earnings. However, Tim Gosling, policy lead for defined contribution at the PLSA, said evidence should inform contribution rates.

“It’s more important to review, build up the evidence base,” he said. “It’s important to see how staging and phasing pan out, and what phasing does to the opt-out rate, then come to a decision.

Self-employment

Last week the Association of Consulting Actuaries issued a report calling for more action to include the self-employed in auto-enrolment.

Webb echoed the call, pointing out that there are roughly 4.5m self-employed people in the UK, of whom only about one in seven contributes to a pension. This figure is falling and is already worse among women and part-time workers.

Hargreaves Lansdown’s Long called for people to start saving as soon as they earn above the state pension rate, but added that the implementation of auto-enrolment was more complex for the self-employed.

“Currently the legislation is built such that the employer is [enrolling] an employee,” he said, and while a self-employed person could in theory be enrolled through the tax system, “that flips the existing system completely on its head”.