I have only skim-read the DWP’s qualitative study on low earners and workplace saving and hope to do so properly this weekend. For now we have the edited highlights from Jo Cumbo’s twitter feeds that focus on the Pension Minister’s decision to retain the earnings threshold at £10.000. I intersperse my comments as we go along.

Some low earners who don’t have workplace pensions are instead investing into crypto-currencies and other financial products, according to new analysis commissioned by the UK government.https://t.co/xFGWz7SSfn

— Josephine Cumbo (@JosephineCumbo) February 6, 2024

Low earners may be high net worth, in which case taking positions on crypto are wealth management decisions.

We know that most people who play the lottery are below median earners, I frequent racecourses and betting shops and am aware that many people putting money down are betting money that they can ill afford to lose. When you are in the gutter you can still gaze at the stars.

While some low earners gamble , most don’t and most are thrifty.

The natural desire for thrift

Separately today, pensions minister, Paul Maynard, confirmed that the current £10,000 automatic enrolment earnings trigger, would stay in place. pic.twitter.com/JWLR0E8ueR

— Josephine Cumbo (@JosephineCumbo) February 6, 2024

The DWP’s decision to maintain the trigger at £10,000  means more people will be auto-enrolled as earnings rise. With inflation currently high, not raising the threshold in the line with the average earnings index will lead to more saving. Thankfully the new savers who do so into net pay schemes (and would otherwise have not got savings incentives from relief at source) will get a payback of some of their contributions in 2025.

Nevertheless, saving in 2024 will be – especially for those in net pay schemes, a high burden for many.

Happily the DWP have sidestepped calls for an op-up, opt-down system. This is already in play in LGPS where individuals can choose half rations on pensions and keep full health and death protections. Sadly, I am told that this facility is little promoted and less used.

The analysis found that lowering the £10,000 a year automatic enrolment threshold would likely boost pension participation among low earners. Once in a workplace pension, the employer is obliged to contribute to the employee’s retirement plan. pic.twitter.com/LMzczVhD9P

— Josephine Cumbo (@JosephineCumbo) February 6, 2024

One reason that opt up/down doesn’t work is because it presents yet another tough decision to those who are already making hard choices around savings/heatin/eating/

Participants in the government’s research described being put off pension saving by the ‘complexity’ of the system. pic.twitter.com/verCSlJVIy

— Josephine Cumbo (@JosephineCumbo) February 6, 2024

Another reason is that administering these decisions in the weeds of a payroll department is an ask too far. I would have expected strong words from the CIPP , had this proposal gone ahead.

Low earners are not homogenous

I remember speaking to Julie Parker-Walsh, then leading Marks & Spencer’s staging of auto enrolment in 2012. She described those workers on low earnings as mainly women , falling into two categories, those who worked to ease the boredom and those who worked to pay the bills.

Those who work more for companionship than money may well see a workplace pension as an employee benefit and welcome being auto-enrolled, some may opt-in if earning less than £10k.

Those who work to pay the bills will see AE as another payroll tax and may well opt-out, or worse stay in when perhaps the consequences are the loss of pension credit or so small a pot as to be inconsequential relative to the sacrifice of building it up. Women truly are at the centre of this debate and this qualitative study

The Govt’s own analysis published today confirmed that women are worse off under the current system, as they are more likely to be low earners.

It says reforming the £10,000 trigger would increase pension participation for women. Govt today decides to keep the status quo. pic.twitter.com/injfbf7np5

— Josephine Cumbo (@JosephineCumbo) February 6, 2024

The integration of work and benefits is even more tricky for those who have limited ability to work

The Govt’s analysis also showed that if the £10,000 automatic enrolment earning’s trigger was reduced, participation in workplace pensions by disabled workers would near double. pic.twitter.com/4Faj8aEsN3

— Josephine Cumbo (@JosephineCumbo) February 6, 2024

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Is DC retirement saving right for low – earners?

I am far from convinced that shoe-horning low-earners into workplace pensions via auto-enrolment is doing either them or workplace pension financials much good. I have mentioned the problems low earners have with cashflow (especially with net pay) and with means tested retirement benefits. Add to this the likelihood that they will not get a fair crack at investment pathways, with minimal pots and for many, auto-enrolment is a tax too far.

For pension companies offering workplace pensions, low-earners are a principal cause of their small-pot problems and an accident waiting to happen.

The decision to freeze the AE earnings threshold at £10k puts AE in a holding pattern, the AE reforms would remove the threshold, there are good arguments to see it maintained. It is good to have the debate now.