Freedom

The DWP has released a 200 page  report into the state of the auto-enrolled nation. You can access it here.

I’ve read the executive summary which is full of surprises and the report is clearly informing future strategy.

The executive summary is data heavy and analysis light. It concludes that we are saving more but that our saving is diluted over a wider group so that average pension saving is actually down.

The summary looks at the pinch points of Auto-enrolment, in particular the opt-out patterns but doesn’t contextualise its findings against the needs of households. What is needed is to know whether it is sensible for low-earners to be saving into workplace pensions (as opposed to avoiding debt) and whether the proposed increases in full-pay saving , are really necessary.

If you haven’t seen the proposals for auto-enrolment, have a look at yesterday’s blog.

Is auto-enrolment becoming a stealth tax on the poor?

Nudging low-earners into high savings increases their savings ratios much faster than high-earners. With an improving second state pension , it could be that many low-earners are “over-saving” and could be doing better things with their money.

Lurking at the back of this are comments made in a recent review of the solvency of state pensions by the outgoing Government Actuary

GAD quinquennial review of State pension Funding (2014)

I am told that “phasing options” is code for a reduction in state pensions. This is of course the Treasury’s de-risking strategy. High dependency ratios among poor pensioners mean high state support for poor pensioners. Getting pensioners to pay for their own support through private pensions reduces the need for subsidisation from the tax-payer. This is how stealth taxes work.

Why don’t low earners get savings incentives?

Such a cynical view gains credence when one considers the absence of any discussion on tax-relief for those not paying tax. As numerous blogs have shown, a high proportion of those auto-enrolled with earnings in the  £8-12,000 range are contributing to workplace pensions without getting the promised government incentive (equivalent to tax-relief).

These people will see their minimum contributions increase by 500% over the next two years, but they will not see this blow cushioned in any way by the incentives enjoyed by higher earners. How absurd and how unfair. The problem is compounded by low-earners not benefiting from other tax-saving-wheezes such as “salary sacrifice”.

And how do the poorest get paid a pension from all this saving?

At the time that the Government Actuary wrote his report (back in 2014), there was an assumption that all this pension saving would turn into the payment of a wage for life (a pension). The words “Defined Ambition” appear in the excerpt quoted.

GAD was writing when the hope was that this workplace pension saving would result in the payment of pensions resulting from the adoption of CDC and other strategies by workplace pensions. Ironically, this is strategy, that was seen as “at odds” with pension freedoms, was dropped early in the term of office of the ill-starred Cameron government.

Two and a half years later, the calls are once again for a means to turn pension pots into pensions. Royal Mail and its principal union are calling for 140.000 postal workers to save using collective defined contribution, the Work and Pension Select Committee is inquiring into how CDC might yet get the oxygen of proper regulations and the Labour party has adopted CDC as part of its pension proposals.

The answer to the question about how the poorest get pensions from their savings does not get answered by IFAs – who are not their to give financial advice to those with modest savings. It is not answered by the pension freedoms – see how they play out in Port Talbot. The answer to the problems low earners have converting cash to a wage for life lies in CDC.

87% of Royal Mail workers in the CWU voted for a wage for life over a cash balance of DC solution.

I want to see the end of pensioner poverty.

The auto-enrolment proposals being put forward by Government under the disguise of supporting younger people, are in practice a tax on the poor.

1. They hit poor people’s wages disproportionately hard. (see chart above)
2. They exacerbate the fiscal injustices of the pension taxation system
3. They offer Government the moral hazard of reducing state spending on state pensions
4. They are ignoring the meaningful reforms of workplace savings plans to make them workplace pension plans.

I want to see the end of pensioner poverty, but I don’t want that to be achieved by making ordinary families save so hard that they cannot have a decent standard of living while working.

The proposals put forward by David Gauke this morning are based upon faulty assumptions. I look forward to reading the whole of the DWP analysis and expanding on this theme over coming weeks.

This looks like being a very cold and damp Christmas for the poor and the Government auto-enrolment proposals will do nothing to make it any better.

Freedom