From the blog: There is currently a logical fallacy in the pensions world that runs like this: First, pensions are a Good Thing. Second, millions of people are excluded from auto-enrolment.
Conclusion: We must bring millions more people into auto-enrolment.
While I agree with the premise, the conclusion simply does not follow.
Conclusion: We must bring millions more people into auto-enrolment.
While I agree with the premise, the conclusion simply does not follow. Out of 26.3m employees in the UK, the Pensions Policy Institute reckons 6.2m are not within the scope of AE.
Of these, 1.8m are under 22 (so will mostly be enrolled next time round) and 0.8m are over state pension age.
So out of a headline figure of 6.2m missing out, there’s no particular reason to be concerned about the 2.6m excluded on age grounds, nor about those who have other pension provision, who may be nearly a quarter of the overall total.
With some mastertrusts threatening monthly charges of up to £40 for taking on small firms, the admin charge could be more than the monthly contribution – this could make a mockery of auto-enrolment
What of the 3.5m or so earning under the £10,000 threshold? The point of pensions is to ensure that your standard of living doesn’t plummet when you retire.
Someone who consistently earns around £10,000 has take-home pay of a little over £9,000 after national insurance contributions. So an income in retirement of around £8,000 would give them a similar standard of living once they no longer have travel-to-work costs, etc.
And guess what, the rate of the new state pension will be nearly £8,000 a year! Not everyone will get the full flat rate, but the combination of a state pension and any private pension will get most newly retired people to a minimum of £8,000.
You might say any extra pension is a good thing. But small employers will have to spend a lot setting up schemes, and the amounts going in for low earners would be tiny.
Someone earning £9,000 would pay less than a fiver a week split between employer and employee.
With some mastertrusts threatening monthly charges of up to £40 for taking on small firms, the admin charge could be more than the monthly contribution – this could make a mockery of auto-enrolment.
For people who always have a low wage, the state pension does the job. For people who are only briefly on a low wage, a few quid here or there won’t make much difference.
But forcing firms to put a few pounds a week into pensions for millions of low-paid workers could wreck the delicate consensus around auto-enrolment.
It’s a risk not worth taking.
Steve Webb is the former pensions minister
