The reaction to last week’s TUC report on state pension reform understandably focused on the results which, the union held, supported its claim that £144 a week would leave the “vast majority of people” worse off.
The report also contained the following, rather depressing, evaluation of the impact on auto-enrolment on the UK’s lowest earners:
“The analysis also shows that it will be many years before auto-enrolment takes effect. In fact, the lowest earners will still be worse off when their single tier and private pension income are combined, compared to the current system alone.”
The success of auto-enrolment, as has been stated here before, will be tied partly to the power of inertia to keep people saving.
Our more conservative readers have reminded me that early opt-out rates are indicative rather than conclusive, but another stunningly low rejection rate from facilities group Rentokil this week means the reform’s hot streak has not yet faded.
But ultimately auto-enrolment will be judged for its impact on those most in need, and if it actually denigrates the lot of the lowest earners then high take-up will be a sour victory.
Ultimately it will vary according to a person’s national insurance record, but the TUC’s conclusion – put simply – is that the loss of the second state pension will not be made up by these workers’ workplace pension. Not to mention that they will be paying contributions for the privilege.
The government maintains that “most people retiring by 2040 will be better off over the course of their retirement” under the new system.
But the TUC maintains an 8 per cent contribution rate will mean male and female low earners reaching state pension age in 2040 will get a private pension income of £7 a week, compared to “lost state pension income of £18 a week”.
I’ve written before that it is not the current government’s fault that the opaque state pension system was not addressed by the previous administration in rosier times. And to an extent this argument will rest on which cohort you focus on.
But this kind of scrutiny is badly needed. If it reawakens the discussion on AE contribution rates, all the better.
Ian Smith is editor of Pensions Week. You can follow him on Twitter @iankmsmith and the team @pensionsweek
