At the start of this year, while much of the nation was packing away its Christmas decorations, a ‘Private Member’s Bill’ was launched in Parliament. This reignited the debate around reforming auto-enrolment.
Richard Holden, the Conservative MP for North West Durham, outlined his proposal for helping younger workers save for their retirement. His is an unusual Bill because it consists almost entirely of things that the government committed itself to in 2017, following the publication of the ‘Automatic Enrolment Review’, but has yet to set a timetable for.
Auto-enrolment has been one of the most successful policies of the last 10 years, bringing more than 10 million people into workplace pension saving. According to figures from the Department for Work and Pensions, auto-enrolment currently adds an additional £28.5bn to the UK’s retirement savings every year. But it could be improved further to make sure it reaches its full potential. That means widening it, so it benefits younger workers, women and people from ethnic minorities.
The Bill focuses on widening the policy to workers over the age of 18 and increasing the proportion of earnings that people save. Currently, people between the age of 18 and 21 are not automatically enrolled into a workplace pension. Although many can opt into pension saving, many don’t and miss out on the employer pension contributions they are entitled to as a result.
Why reform of auto-enrolment is needed
Lowering the age at which people are automatically enrolled from 22 to 18 makes sense for 2 reasons:
- First, if people start saving earlier then they could retire earlier.
- Second, 22 is a legacy from a time when the age for pension saving through auto-enrolment was the same as the age people were entitled to the full rate of the National Minimum Wage. The rules for the minimum wage got changed but not the rules for pension saving. Tidying this up is good policy housekeeping.
The Bill, which will go before the House of Commons again in late February, includes a second policy change, also itself a government proposal. In 2017, the ‘Automatic Enrolment Review’ proposed scrapping the lower earnings threshold. This means that pension contributions would count from the first pound earned rather than the current threshold of £6,240.
The Pensions Minister, Guy Opperman, reaffirmed the government’s commitment to implementing these reforms with a target date of the ‘middle of the decade’ often being floated. This measure will dramatically increase the pension saving of people in part-time work, younger workers and others in low-paid jobs.
Reform timetable must consider wider economic circumstances
While we’ve consistently called on the government to set a timeline for the introduction of the already promised proposals, we do understand that changes such as these cannot happen overnight and should only be implemented once the post-pandemic economic recovery is complete. We are acutely aware of the very real pressures facing millions of households right now as inflation and every day costs continue to rise. And we realise that there must be a ‘right way’ for such proposals to be implemented.
We think that it makes sense to lay the legislative groundwork for these reforms now and then gradually implement them to manage their post-pandemic impact. If this isn’t done, we potentially risk undermining the success of auto-enrolment. The policy was phased in over a period of years and there’s no reason why the same approach cannot be adopted for improvements to auto-enrolment.