At the launch of the Resolution Foundation’s Retirement Living Standards, Pensions Minister Guy Opperman laid out some plans for what he’s calling Auto-enrolment 2.0. This blog asks whether 2.0 is just more of the same or a genuine upgrade. It’s too early to tell yet, but judging by the mood of the current Pension Minister, I suspect that we will see real progress over the remaining years of this parliament.
Opperman is also Minister for Financial Inclusion, so auto-enrolment which has included 11m people in pensions so far, should be close to his heart. But auto-enrolment so far has not featured high on Opperman’s list of priorities for reform, perhaps because it has been that wonder of wonders, “a policy success story”.
When the 2017 auto-enrolment review – led by Ruston Smith, landed on our doormats late in 2017 , it was sub-titled “maintaining the momentum”. Three years on, we are in the implementation zone and it’s worth looking back at what auto-enrolment 2.0 was on the cards then.
Strategic problem 1: Current saving levels present a substantial risk that the retirement expectations for a significant proportion of the working-age population will not be supported. In addition the current structure of automatic enrolment means there are gaps in coverage – notably for those in low-paid multiple part-time jobs and younger workers
Strategic problem 2: A large proportion of the self-employed population experience significant gaps in pension coverage and/or other savings for retirement.
Strategic problem 3: Whilst more individuals than ever before are saving, they are not necessarily engaged with saving nor looking to take greater personal responsibility to plan, and save more, for their retirement
Looking back, (over the hiatus of the pandemic), auto-enrolment appears to be still in good shape. Nothing suggests that it is slowing down and while opt-outs have slightly increased , the furlough has meant most people are continuing to save for their retirement.
But large numbers of people are saving nothing for their future so let’s look at the proposals the review put forward.
- reduce the lower age limit from 22 to age 18
- change the framework for automatic enrolment so that pension contributions would be calculated from the first pound earned, rather than from the lower earnings limit.
- those earning at or below £10,000 would not be automatically enrolled, however if they opt in they would also benefit from pensions contributions on 8 per cent of all their earnings
On strategic aims 2 and 3, the Government delivered some warm words but made no specific promises.
Opperman, who had only been in the job 6 months at the time said in his forward that his ambition was “to implement these changes to the automatic enrolment framework in the mid 2020s“.
AE 2.0 – agenda for 2021
The financially excluded of 2017 are the financially included of today and despite a series of judgments insisting that Uber drivers are workers and changes to the rules surrounding IR35 , the grey areas around self-employed and contractors remain – grey.
While the Minister could get away with waffle in his early days, time and experience moves on and we now need something a little more from AE 2.0 .
I’m virtually meeting the Minister next week so I thought it worth setting down some simple ideas.
- Any further inclusions will create a lot of small pots, we need the small pots working group’s proposal to happen. I understand that the ball is in the master trust’s court, the group needs to keep meeting and the Minister should look to set out the timeline for action and set out what it can do on its own and what it needs legislation for. I have put forward my favored solution “master pot“, it is one of a number of options being considered, to coin the phrase – the group needs to be “maintaining momentum”.
- The proposals to include everyone down to 18 is a no-brainer. Early contributions count for a lot and most 18 year olds are financially savvy enough to know exactly what’s going on – if you’re old enough to vote, you’re old enough to save.
- Contributing from £0 will cost employers more and savers more, but it is an easy way to nudge up contributions that shouldn’t scare the horses. It also makes for easier administration for employers who don’t know what they'(most micro employers)
- Keeping the income threshold where it is, is including more people in AE, but it’s also increasing the number of people missing out on promised incentives (because they don’t get tax-relief). My support on this is conditional on the Pensions Minister beating John Glen over the head with a metaphorical frying pan until HMT adopts NPAG’s P800 solution
- As for the self-employed, I suggest pension NICs set at AE rates which the self-employed can opt-out of. It’s simple and manageable and though it will pick up much higher opt-outs (from the bolshy) many self-employed will welcome a no-brain solution. The self-employed can and should use Nest, Nest should be the default (though other workplace and non-workplace pensions could be available).
- On Nest Insight’s sidecar solution, which is promoted in 2017, the time has come for this to be more or less. The proof of concept doesn’t appear to be in place and this is now showing as a vanity project. Unless there is some genuine evidence that the Sidecar is more than a nice liberal idea, it should be put out of its misery.
- As regards the wider issue of engagement, the Government should remember that employers are the real heroes of AE and it’s time they were helped to promote their workplace pensions. There is evidence that AE is not just a great “savings” story, but also a great “investment” story. It’s time that employers were able to promote this story, not just in terms of numbers – but with stories about where the money is going. People want to know their money is mattering. Initiatives such as the simpler pension statement gets us some way and the pensions dashboard will get us little further, but most employers are not in these loops and need to be encouraged that promoting their workplace pension is not classed as advice so long as its based on factual information. Employers need proper information.
AE 2.0 – anything new?
Back in 2017, we were pre-Brexit, pre-pandemic and pre a massive majority for a new parliamentary term.
There are another four years for the Pensions Minister to get AE 2.0 in place but it will need another Pension Act to get many of these meaningful changes in place and we know these don’t come quick. So the groundwork for these changes need to be in place by the end of 2021, if they are to be properly implemented this parliamentary term.
Opperman can’t be expected to remain a junior minister of state for ever so it’s in everyone’s interest that we get on with consulting on and agreeing change. We need to be proactive too about associated initiatives such as small pot consolidation.
There is plenty new in this blog, some of it may make sense to Government (not least because none of my ideas are really my own). Let’s hope that Auto-Enrolment 2.0 does maintain the momentum, there is much more to do.