Auto-enrolment at risk after national insurance increase

On Tuesday, prime minister Boris Johnson set out the government’s long-awaited plans for social care reform, announcing a 1.25 per cent increase in national insurance and dividends, branded as a ‘health and social care levy’.

However, Aegon has warned that this hike might cause the auto-enrolment reforms to be delayed, with little chance that these “will happen this decade”, argued head of pensions Kate Smith.

The auto-enrolment review, conducted in 2017, recommended a number of improvements to the government’s flagship policy to be implemented by the mid-2020s.

At the time, the government stated that it would be lowering the age for auto-enrolment of workers into workplace pension schemes from 22 years to 18 years of age, and changing the way pension contributions are calculated.  

The government also committed to removing the salary offset, currently £6,240 a year, so that contributions were based from the first pound earned from the mid-2020s, Smith noted.

“Both these initiatives would have allowed more people, especially those on lower incomes, to have saved more in the pension via their own and their employer’s contributions, improving their financial wellbeing over the longer term,” she said.

She noted that for many, the current 8 per cent minimum auto-enrolment contribution is “unlikely to build a lifetime of financial security, and the harsh reality is that people will need to save more one way or another”. 

Smith added: “Faced with increased national insurance contributions, employers may baulk at any changes to auto-enrolment, which would further increase their costs, let alone any increase in the 8 per cent auto-enrolment contributions. 

“This in turn may discourage the government from forcing employers to do this until the next decade. Instead, it will be up to the pensions industry to work with employers to encourage employees to save more, where they can afford to do so.”