The government's review of auto-enrolment should look at widening the scope of the policy, says the Pensions and Lifetime Savings Association's Tim Gosling.
With implementation running smoothly and low opt-out rates, the question is, 'How do we build on this early success?'
There is a pressing case for including self-employed people, and the review is a good opportunity to stress-test the various ways of doing this
Our consultation response to the government’s automatic enrolment review 2017 highlights areas where we think the policy could develop.
Our research, 'Retirement Income Adequacy: Generation by Generation', shows that auto-enrolment is on track to substantially raise the retirement incomes of many people in the UK.
At risk of falling short
The research also highlights that of the 25.5m employed people in the UK, 1.6m are still at risk of falling short of the Joseph Rowntree Foundation’s Minimum Income Standard (£9,500 in 2016) and 13.6m are at risk of not meeting the target replacement rates set out by the Pension Commission.
Our modelling suggests that raising the minimum contributions to at least 12 per cent of band earnings is a reasonable medium-term objective.
People may need to make additional contributions on top of that or work later in order to achieve a desired replacement rate, but it is clear from the modelling work that 8 per cent of band earnings is insufficient.
Timing matters, though. We agree with the government that there should be no detailed plan for change until after staging and phasing are complete. The immediate priority should be to make a success of phasing and ensure people keep saving into workplace pensions.
Include low and self-earners
There is also a case for including low earners and the self-employed. Where an individual has earnings from more than one source pushing them above the trigger for auto-enrolment eligibility, they should be saving into a workplace pension.
AE review: Tension between engagement and inertia comes to the fore
With the Department for Work and Pensions’ review of auto-enrolment underway, advisory groups are seeking views on engagement, contributions and coverage, but questions remain over the necessity of engagement and the pensions reality in other countries.
The number of self-employed people increased by 730,000 between 2008 and 2015. At the same time, the proportion of self-employed people paying into a pension has fallen.
There is a pressing case for including self-employed people in the scope of the policy, and the review is a good opportunity to stress-test the various ways of doing this.
These are still early days for auto-enrolment and there is much to do to ensure the policy reaches its full potential. The review is an excellent opportunity for the pensions sector to help shape an emerging policy success.
Tim Gosling is policy lead defined contribution at the Pensions and Lifetime Savings Association
