Those who argue that auto-enrolment should target all earnings and all earners should take a look at this chart, published yesterday by the DWP from information from the ONS.

It shows that while those on average and higher earnings are highly likely to participate in their workplace pension (or set one up for themselves), the participation rates fall away below £30,000 pa and show those close to the bottom of the current AE earnings threshold are unlikely to be saving.

This does not suggest that extending auto-enrolment to £0 and including workers who are currently not eligible for contributions (those under 22 in particular) will not help overall savings and could do a lot of harm to the finances of those hardly getting by.

Enthusiasm for workplace pensions among those ineligible for auto-enrolment (the ones who have to opt-in) is now waning (represented by the orange line)

There are many indicators that suggest that auto-enrolment doesn’t work so well for low-earners. One is the way that tax-relief works. A larger number (1,7m) of those earning above the trigger to auto-enrol but below the income tax threshold are paying contributions but getting no saving incentive. This includes all public service workers who are all caught by the net pay anomaly. Though they can apply for the incentive to be paid into their bank account as a contribution rebate, this won’t kick in till this time next year, in the meantime many low-earners are paying 5% of band earnings not 4%.

Another alarming concern is that the benefit system in later life can actually penalise those who don’t get a full state pension and disqualify themselves from pension credit for having small pension pots accumulated through auto-enrolment

Low-earners are generally aware of means testing and wary of traps that can be sprung by following the party line. Savings are a worry for the poor who know how universal credit can be reduced if savings are available. We can’t have pension savings traps and a useful thing for this Government to do would be to commission Gareth Morgan to work through all the means-tested anomalies that exist that can penalise pension saving by the poor. Either we publicise these anomalies or we stamp them out.

Private pensions are not affordable to all

We are keen to encourage financial resilience through sidecar savings and rightly so. But people at work should not be having to go to food banks to make ends meet.

We need to find ways to balance savings and debt. Again, I’d point to the valiant work of our charitable sector, of MaPS and of TV financial evangelist Martin Lewis in helping people get this balance right.

The Government is right to be extremely nervous about upsetting the balance through intervening in mandator savings rates for the lowest earners.

Another way of looking at Figure 3 at the top of this blog is that it justifies the cautious approach of our current system to nudging those who can’t afford private pensions into doing the wrong thing.