Martin Tilley: Auto-enrolment reforms need momentum

It was announced on 16 December that Rachel Reeves was pressing pause on the second stage of the pensions review, a review that was expected to contain the long-awaited extension of auto-enrolment and measures to help the self-employed save for retirement. The reaction from the industry was one of disappointment and mirrors my own feelings. The extension of auto enrolment has been on the cards for some time, having been proposed in 2017 following a government review. These reforms have taken an inordinate amount of time to get to this stage, and with the ERNIC (Employer Related National Insurance Contributions) increases in the Budget, it looks like they may not proceed at all. The second stage of the pensions review was viewed as the end of the auto-enrolment saga - an implementation of an amendment to existing regulation, that would capture a cohort of people who for the most part, do not save sufficiently for retirement. Expanding the eligibility for auto-enrolment is just a logical step in the journey. However, the financial challenges that such a change would bring cannot be simply ignored or easily circumnavigated. The Pensions (Extension of Automatic Enrolment) Act 2023 received Royal Assent in September 2023. The Act allows for the creation of regulations to effect the following changes: • The reduction of the lower age limit for eligibility, from 22 to 18 and;• The reduction or removal of the Lower Earnings Limit (LEL) which would allow contributions to be made from the first pound earned In simple terms, they would allow anyone aged 18 or over to be automatically enrolled in their workplace pension, assuming that they meet eligibility criteria. At the time, former Pensions Minister Baroness Ros Altmann stated that the new legislation would unlock pension saving for currently ineligible cohorts like lower earners and part time workers. It’s estimated that the expansion of auto-enrolment would allow an extra £2bn to be saved for retirement. I think few would argue that auto-enrolment hasn’t been a success in terms of the number of people now saving towards their retirement. However, I suspect that for most it will not provide sufficient pension income in retirement unless coupled with increased contribution levels or supplemented by other retirement saving. The Institute of Fiscal Studies (IFS) found earlier this year that up to 40% of private sector employees with DC schemes are going to be underfunded for retirement. Clearly this is a problem that needs immediate attention. I’m not suggesting that simply extending auto-enrolment is the answer to this problem, as the current 8% contribution level is likely not to be sufficient to provide a comfortable retirement. However, it is a start and a platform on which we can continue to build with financial education and pensions awareness. I am a supporter of the Pension Dashboard project, which I see as a key step forward in terms of pension awareness. The ability for people to see their pension saving, and therefore sight of the amount that they may be able to access in retirement, is a good thing. I note that the FCA’s recently released discussion paper (DP24/3) on the adapting needs of pension consumers that they too see the need for technological development including the use of ‘tools and modellers’. If you couple this with the information that should be available on the Pension Dashboard, I think that’s a clear step forward in terms of pension engagement. However, this benefit is underpinned by the tangible delivery of the much-delayed dashboards. It should be visible to people as to whether they are saving enough for retirement, absent of financial advice. The pensions review promised by Labour provided hope for the industry that positive changes were going to be made, or at least considered, to fix the fundamental issue of under-funded pensions. Delaying this at the same time as implementing seismic changes to the IHT treatment of pensions, following the frankly disastrous abolishment of the lifetime allowance, is surely only going to serve in putting people off pensions? Public confidence in pension saving has been progressively eroded by successive governments of both political colours changing the rules. I can’t help but think the recent news that there will be no compensation for WASPI women won’t help this cause either, bringing the whole issue of uncertainty and mistrust right to the forefront of public consciousness. I appreciate why the review has been paused. The Budget introduced a double blow for businesses in respect of both increased employer national insurance and an increase in minimum wage. Adding in an increase in pension contributions might just be the straw that breaks the proverbial camel’s back. The government have evidently prioritised the tax take from the increased ERNIC as the priority here, at the expense of auto enrolment expansion. Something needs to be done to increase pension savings and auto enrolment seems a good place to start, even if this is a pared back improvement, perhaps only introducing the reduction of the lower age limit for eligibility. The reality is that any implementation is likely to need some kind of offset for businesses, like Corporation Tax relief, to make it viable. Ultimately, the Government needs to deliver, both on the pensions review and the delivery of Pension Dashboards, and a practical and realistic solution to the auto enrolment challenge. Martin Tilley is chief operations officer at WBR Group martin.tilley@wbrgroup.co.uk

Martin Tilley: Auto-enrolment reforms need momentum

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