Never mind the quality, feel the width- AE review to nudge coverage not contributions!

goat nudging



The Government has set out it’s stall for next year’s AE review. To the disappointment of providers, an increase in contributions is not on the agenda. But the breadth of coverage of AE is – including consideration of the self-employed.

This is in line with the recent behaviour of other Government departments. In October the Cabinet Office set in train the Taylor review of the Gig Economy, focussing on the new ways we work and get paid. In November, the Treasury announced new rules for employers in the public sector using personal service workers for contracts. The Office of Tax Simplification have in December announced further proposals to align national insurance to the changing needs of the self-employed, abolishing class 2 contributions.

This is a remarkably consistent set of initiatives which suggest that there is a clear strategic direction from the top. Perhaps we have a prime minister who means what she says when focussing on those just getting by.

 Super subtle nudges through the thresholds

Along with the ministerial statement on the AE review the DWP are also announcing three important changes to the auto-enrolment limits

  1. The earnings trigger will remain at £10,000 bringing in a further 70,000 savers (many of whom will be caught in the net pay trap).
  2. The lower earnings limit will be in line with 2017/18 NI threshold earnings (£5,876)
  3. The upper earnings limit will be in line with 2017/18 NI upper threshold earnings (£45,000)

This is further nudging at its subtlest.

Since the lower earnings threshold increased by CPI rather than average earnings, it has lowered in real earnings terms and as the NI upper threshold increased by £2,000, it has increased in real terms. The net impact of the contribution thresholds will be an increase of £61m in pension contributions, the impact of freezing the earnings trigger will drive a further £51m into workplace pensions

It looks like in the years ahead, this is as much compulsion as the Government has in mind- at least on the existing constituency.

It is easy to see why the Government are shying away from more radical increases in contributions. The Autumn Statement made it clear that Treasury forecasts expect to see no real increases in earnings before the end of the decade.

Clearly Government has decided that the success of auto-enrolment is not going to be imperilled by reckless compulsion (even with an opt-out!).

So much for  quality – what of the width?

The Ministerial Statement makes it clear the Government are after the self-employed personal service worker (PSW)  whose contributions to personal pensions have been falling since the demise of the commission-based pension salesman

So far, the Government’s attempts to collar the PSW into auto-enrolment has not been a great success. Little information is available as to the number of off-payroll workers saving into workplace pensions but anecdotal evidence suggests that there is little attempt to apply the Regulator’s test “does he/she look, feel and smell like a worker”. Either the PSWs are too fragrant or employers and payroll cannot be bothered

If there is mass employer disobedience, then there is scope for a class action against any boss who has signed his declaration of compliance without enrolling the PSW who can prove he is an eligible job-holder.

Employers will no doubt plead that not only was the definition of a PSW obscure, but there was no obvious mechanism for collecting contributions or administering opt-outs. The review will incorporate the DWP’s promised review of the workplace pension charge cap.

No doubt, the auto-enrolment review will be looking at the mechanism as well as the principles, the current system is neither working in principal or in practice. Just how the self-employed can be included in workplace pensions seems unclear, but the DWP are putting themselves under no time pressure, it is not aiming to complete its findings in 2017 and there is no deadline for the implementation of the reviews proposals in the Ministerial Statement.

So much for auto-enrolment, what of workplace pensions?

As with the consideration of scope, nothing on workplace pensions is expected to be announced as policy in 2017 but it looks as if the promise to consider transaction costs as part of the cap will be fulfilled. Despite harsh words for asset managers in the FCA’s recent study of them, it seems unlikely that the Government will limit the capacity of providers to maintain their margins.

The Government seems intent on fostering a competitive market among workplace pension providers. Rather than inhibit innovation through a cap on revenues, I expect the Government to focus on requiring better governance, greater transparency and a responsible attitude to dealing with workers earning in excess of the earnings threshold but unable to claim tax relief while in a net pay arrangement.


nod’s as good as a wink




About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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