About a year ago the Tax Incentivised Savings Association (Tisa) asked its members to vote for a name change to The Investing and Saving Alliance. This meant it kept the Tisa acronym even though the underlying name changed.
TISA hopes it can shake off its previous image as a lobby group for those privileged to benefit from Britain’s absurd bias towards wealth creation and be seen as a more populist organization with one foot in the mansions in Surrey and the other in the estates of Salford (insert your own non-regionalist variants if these offend).
But TISA still represents the interests of the majority of Britain’s savings institutions and its directory does not include the major organizations involved in personal debt- Age UK, Maps and Step Change.
This is how it segments its membership, TISA is a commercial lobby group for the personal financial services industry.
So I wasn’t puzzled by its new position on auto-enrolment. TISA proposes measures to stop low paid getting further into debt, as well as increased pension contributions from those on higher salaries.
The proposals are that those earning £17,500 or less (2/3 the 2019 average earnings) get the right to opt out of personal contributions , while those who stay in see their contributions rise to 6% of band earnings.
The justification for this opt-out is that low earners would still be entitled to a new enhanced employer contribution – also of 6% of band earnings. They wouldn’t be saving but they would only lose a small proportion of the 8% they currently get of which employees pay half. Well of course 1.7m low earners pay more than half as they don’t get the 1% savings incentive originally planned for them, because of the net pay
The experienced reader will note that I am more than a little concerned about what is going on here. Much as I like the author of TISA’s “Getting Retirement Right (phase 2), (Rennie Biggins), I suspect that the sponsors of this report will do rather better out of this, than employers or savers. Here are the sponsors
With the best will in the world, this lot does not represent the interests of the low-paid and indebted, they represent the interests of their shareholders and partners who benefit from the affluence of those entitled to tax incentivized savings.
The timing of this sally into social enterprise by these titans of finance is but weeks prior to a budget that threatens the status quo of the pension taxation system as the Chancellor struggles to balance his books and offer something better to those on low incomes than the prospect of unemployment and lockdown.
Frankly this is social engineering
The point of auto-enrolment is that it brings us together , saving in one way – we’re all in.
Encouraging those on genuinely low incomes (rather than in well paid paid part time work), to opt-out to ease debt is excluding those who have chosen to “stay in” from seeing “pension” on their payslip.
It may seem irrational , but throughout modern times , those on low incomes have paid premiums to insurers, national savings and to a variety of mutual savings schemes as their contribution to their own retirement. The dignity of retirement is enhanced by this saving, and I would be surprised if opt-outs increased substantially even among the indebted. Auto-enrolment participation rates remain high for low-earners because they want to save, not because they are too thick to opt-out.
The TISA suggestions would of course get around the net pay problem as Government could point to the rights of the low paid to exclude themselves from the “anomaly”, but the point of calling the incentive an “incentive” was that it was paid to the low-paid to include them. The paper stops short of recommending that opting out of auto-enrolment would for many low paid employees , stop them having to over-pay contributions, but I fear that is exactly how this will be read in Government circles.
What is the net impact of this social engineering?
These proposals would see those on medium and higher incomes get more from auto-enrolled workplace pensions as employer and personal contributions increased to 12% of band earnings in total. This would be good for Middle Britain and very good for pension providers and fund managers (see above).
These proposals would dangle a carrot to the low paid to stop saving for their retirement in exchange for a healthy increase in take home pay. They would certainly reduce indebtedness in some quarters though the acute household debt is amongst those outside of work and reliant on benefits (for whom auto-enrolment is irrelevant).
There are much better ways for Government to alleviate personal debt than by fiddling with pensions.
The proposals would also create more strain on the finances of SME’s who would see their AE contributions double. While this would not hurt the affluent employers who already sponsor higher levels of contribution, it would undoubtedly mean total reward budgets would be readjusted. Increasing pension bills for employers usually results in down-stream problems for those least valued employees – for whom the employer pension increase could easily be swapped for a P45.
To me it is disgraceful that these proposals are coming at this time when people are vulnerable from the pandemic, fearful of their jobs and worried about their futures. Downgrading retirement expectations and undermining auto-enrolment is not the way to improve financial inclusion, This is a breathtaking exercise in paternalism by Britain’s wealth industry and while it is – thankfully – unlikely to influence short-term Treasury or DWP policy, it is a seed that should not be allowed to germinate.
The need for change
We do need fundamental change in the way public funds incentivise savings. We need tax reform that redirects money to encourage those on low earnings to become self-sufficient in retirement.
We also need a radical upgrade of the benefit system to cope with the poverty that the pandemic is bringing.
These are jobs for Big Government who can look beyond the vested interests of the financial services industry. We in financial services should be focusing on making sure our houses are in order and not indulging in this kind of nonsense.