We have been paying attention to the work of parliament in understanding workplace pensions and considering options available to the DWP and Treasury with regards contributions.

It’s good of the Work and Pensions Committee to select  our submission for its website.

For ease, I republish what we wrote for the Committee. There were our three submissions publicised but another 31 that sit behind it.

We think the issues around increasing contributions are complex –  conflicts of interest abound.

Terms of reference for Work and Pensions Select Committee’s inquiry into pensions auto-enrolment

• To what extent do minimum AE contributions need to increase?

It would be good if everyone had contributions into DC or CDC at 12% of total earnings, but this cannot be mandated or even set as the AE minimum. Too much has been written about adequacy for us to add numerical formulae which appear meaningful, but we see much can be done with the benefit system that cannot be achieved by funded pensions. People do not choose to be on benefits, but we should not condemn those who get mean-tested benefits as a burden

• How should any contribution increase be shared between employers and workers?

Any contributions from employers replace wages. There is sufficient leniency within the 2029 salary sacrifice proposals to make employee contribution up to £167pm and will mean that many low paid earners will benefit from an election to have all contributions up to £2,000 pa made by the employer. We expect for employer HR and payroll teams to work this out!

• What are the trade-offs for employers and workers between current needs and long-term savings? How might policy design help balance them?

For 40 years we have had real growth in residential property prices, but now the prices of houses and especially flats in some parts of the country are falling. If people cease to rely in the mantra that the house is the pension, then people will consider long-term savings as more important for a wage in retirement. The pension dashboard will display savings as income, and we think that the Government is doing well to ensure from 2029 that DC defaults will include a retirement income to last as long as the saver. We consider CDC as another reason for employers and employees considering contributions as deferred pay and attach greater importance to them.

We see 2029 as an important year when retirement guidance and Retirement CDC arrive. CDC will be well established and salary sacrifice will be being restricted. This looks like “big bang” for workplace pensions

• Is there also a case for reducing or removing the lower earnings limit on contributions and/or the earnings trigger for auto-enrolment?

We think that the lower earnings limit is successful in keeping many who should not be saving either because of affordability or because of the practicalities of keeping a record, paying an unnecessary levy and dealing with claims. We would keep it in place.

• To what extent are employers and the public persuaded of the need for contributions to increase?

Few people consciously believe that having a payroll deduction is enough to meet their aspirations for later life. Most people will pay more if that is what auto-enrolment requires them to do. But there is a point for many people on low income when the benefit system becomes more attractive than self-sufficiency and for these people higher contributions will not attract them back into AE.

• What would be an appropriate timetable for any increases?

The majority of our 1.4m employers see AE as an extension of National insurance and have little interest in workplace pensions or what they produce. They have no fiduciary duty to their staff and until they and their staff are convinced that what they are contributing is both value for money and a form of deferred pay they will continue to see AE as a part of taxation.