Associate Rhiannon Barnsley examines auto-enrolment reform in The Legal Diary
Nobody is thinking about auto-enrolment reform at the moment. Quite frankly, people are more concerned about how they are going to afford to put the heating on this winter or how they are going to pay their mortgage. Understandably, of course. However, this shouldn’t be used as an excuse by those with the power to make reform to continue pushing auto-enrolment reform to the back of the agenda.
The current auto-enrolment regime is too constricted. It needs to apply to more people. There is a bill currently in the Commons which aims to extend auto-enrolment to include 18+ year old employees and reduce the “qualifying earnings” threshold – that is earnings on which pension contributions are paid.
Although this is a step in the right direction it doesn’t go far enough. Minimum contributions also need to be examined, as does the £10,000 minimum earnings threshold. The current minimum contributions aren’t enough, especially when comparing the minimum 3% of salary employers must contribute to the equivalent employer contributions for those with defined benefit pensions – such as those received by employees in the public sector.
With the state pension age increasing, many employees with defined contribution only pension arrangements may find that they are having to work longer than planned because the amount in their DC pension pots is not enough. It is no secret that DC pensions are less generous than their DB counterpart. Although life expectancy has decreased slightly in the last couple of years, individuals with DC only arrangements may struggle with relatively small pension pots that are meant to last them for 20+ years.
Some may say that at a time where people are struggling to pay day-to-day expenses, they need the money right now rather than contributing part of their salary towards their pension.
But auto-enrolment doesn’t force people to save for their retirement – it is a choice. Employees deserve to be allowed to make that choice and receive what are essentially “free” employer contributions to their pension. Expanding auto-enrolment gives more employees that option.
Read Rhiannon’s article in The Legal Diary here.
The views in this article are intended for general information purposes only and should not be used as a substitute for professional advice. Arc Pensions Law and the author(s) are not responsible for any direct or indirect result arising from any reliance placed on content, including any loss, and exclude liability to the full extent. Always seek appropriate legal advice from a suitably qualified lawyer before taking, or avoiding taking, any action. If you have any questions on the points raised in the above, please do not hesitate to get in touch.