A bill to expand automatic enrolment, to be debated in parliament on February 25, will not look to remove the £10,000 earnings trigger contrary to initial expectations.
Conservative MP Richard Holden tabled a private members bill in the House of Commons in January looking to lower the age threshold for auto-enrolment from 22 to 18, and there were rumours that the £10,000 earnings trigger would be scrapped, in line with proposals from think tank Onward, with which he had previously worked.
A number of industry stakeholders had advocated the move, with Now Pensions calling in February for the earnings trigger to be scrapped in order to bring more people into workplace pensions.
Women and young people were said to be the biggest beneficiaries of the move, with the former in particular more likely to hold a number of part-time jobs without exceeding the £10,000 threshold in any one of them.
Abolishing the earnings trigger would mean defaulting people whose income is below the state pension into reducing their spending power now in order to increase it in retirement, which might make sense for some part-time workers in couples, but certainly won’t for everyone
David Robbins, Willis Towers Watson
More modest proposals
The Onward report stated that the current system “results in a pension participation rate of just 20 per cent for 16 to 21-year-olds, 41 per cent for those earning £100-£199 a week, and 58 per cent for part-time employees”.
The youngest employees — those aged between 16 and 21 — “are currently five times less likely to have a workplace pension as middle-aged employees”, it added.
Onward estimated that its proposals, if enacted, could add as much as £2.77tn to workplace savings over the lifetime of the current workforce, with younger workers gaining an extra £20,267 on average upon retirement, and a worker with two part-time jobs, each paying £190 a week, seeing their pension savings triple to £297,600.
It proposed a phased approach to the reforms, with the earnings trigger and age limit being scrapped in 2023 and the qualifying earnings limit being progressively lowered from 2024, then eliminated in 2026.
Holden’s bill, which was published ahead of the discussion in Parliament, however, restricts itself to the proposals outlined in the government’s 2017 auto-enrolment review. It proposes expanding auto-enrolment to 18-year-olds and eliminating the lower, qualifying earnings threshold, making earnings pensionable from the first £1 where people are enrolled or have opted in, but makes no mention of the £10,000 trigger.
It is in line with a written statement from pensions minister Guy Opperman, published earlier in February, confirming the government’s intent to maintain the earnings trigger and the qualifying earnings bands unchanged for 2022-23.
In a separate document analysing the impacts of the earnings threshold, the government warned that setting it too low would hit those for whom it makes little economic sense to divert money from their daily needs into pension savings.
The government said it was prioritising stability in the system, although industry commentators were dissatisfied.
Andrew Tully, technical director at Canada Life, argued at the time that the decision failed “to address the major issue, which is the many people — mostly women — who earn below £10,000, or have multiple jobs each of which are below £10,000, who aren’t auto-enrolled”.
“We know automatically enrolling people in a pension has been a huge success, now we need to extend that coverage to more people who are currently missing the opportunity to benefit from their employer’s pension contributions,” he said.
The government has committed to expanding auto-enrolment some time this decade, but Opperman has repeatedly declined to give a specific date, most recently at a Westminster Hall debate in February — a failure former pensions minister and LCP partner Sir Steve Webb branded “a huge disappointment”.
“The government needs to realise the urgency of this issue. A whole generation of people who missed out on [defined benefit] pensions and are only building up modest [defined contribution] pensions could be set for a miserable retirement unless the pace of change is increased,” he said.
“Good intentions are no longer enough, we need action.”
Commencement date ‘unlikely to be imminent’
Commenting on Holden’s bill, David Robbins, senior consultant at Willis Towers Watson, told Pensions Expert that bringing the proposals into line with those of the 2017 auto-enrolment review “would certainly make it easier for the government to support the bill”.
Opperman declines to give timetable for auto-enrolment expansion
Industry experts have expressed disappointment at the lack of a timetable for expanding auto-enrolment, following a debate on the topic in Westminster Hall.
“Abolishing the earnings trigger would mean defaulting people whose income is below the state pension into reducing their spending power now in order to increase it in retirement, which might make sense for some part-time workers in couples, but certainly won’t for everyone,” he explained.
He cautioned, however, that making earnings pensionable “from the first pound” would “constrain wage growth and reduce take-home pay at a time of growing concern about the cost of living and when national insurance is about to go up”.
“So, if the government did support the bill, I would not expect this to come with an imminent commencement date,” Robbins said.
