Calls for govt to rethink auto-enrolment contributions

Considering the impact of Covid-19 on auto-enrolment, it is likely that many lower-paid people will opt out of pension schemes due to affordability, and therefore miss out on employer pension contributions, the company stated.

The numbers of individuals ceasing pension contributions is unknown at this time, since the government has claimed it is unable to determine whether opt-outs from auto-enrolled pensions have increased since the pandemic.

To counter this, Quilter is proposing that lower-paid individuals who opt out of making an employee contribution would still be able to benefit from a continuing employer contribution.

Reforming auto-enrolment to allow partial opt-in would allow an employee to forego their personal contribution and any associated tax relief, but continue to benefit from the minimum 3 per cent employer contribution, the company stated.

This would apply to people on a salary up to £17,500, which is broadly equivalent to 60 per cent of the 2019 financial year-end median earnings. The new threshold should be reviewed regularly, Quilter added.

Jon Greer, head of retirement policy at Quilter, argued that “it is difficult for anyone on the national living wage or lower to be making a pension contribution”.

“However, facilitating a partial opt-in for lower earners would mean they could at least save something if they felt they had to cease contributing themselves due to affordability.”

Mr Greer noted that the government is required to review the thresholds every year, with the last iteration published in February.

“Every week we are seeing the impacts of Covid-19 on the economy, and it makes it even more important that our savings policies are working appropriately, particularly for lower earners,” he said.

“As people come under financial pressure, there is a temptation to opt out of pension saving. A partial opt-in would offer them a halfway house.”