Around 12 million private sector workers will be excluded from auto-enrolment next year unless the Government reduces the earnings trigger and extends cover to the self employed, the Association of Consulting Actuaries (ACA) claims.
ACA calculates that over 40 per cent of employees of micro employers – around 840,000 firms with fewer than 5 employees – earn below £10,000 a year, the threshold for inclusion in auto-enrolment. A survey by the organisation that polled 455 small firms shows employee opt outs are expected to rise to over 21 per cent of eligible jobholders in smaller firms, meaning that more than 60 per cent of employees amongst the vast majority of firms left to stage could miss out on workplace pension scheme membership. ACA says around half a million of the 4.8m self-employed are currently saving in a pension.
The survey found just 15 per cent of small firms support increasing minimum AE contributions after they reach 8 per cent of qualifying earnings in April 2019, while just 32 per cent of small firms support lowering the earnings trigger to below £10,000pa to extend eligibility to join AE.
The survey also found 26 per cent of the firms with less than 10 employees said AE will impact on employment levels.
ACA chairman Bob Scott says: “Many have commented to date about the generally low level of pension contributions being saved into most AE schemes, and rightly so. Our survey underscores that in smaller firms the problem is heightened, with those joining AE generally at or near the minimum levels of total contributions, which amount to less than 2 per cent of earnings at present.
“Worse still, the survey findings point to both higher levels of opt outs than has been the case when larger employers enrolled employees, alongside huge numbers excluded from AE on income grounds alone. This is beginning to be reflected in the monthly TPR figures, with the latest months’ showing those ineligible for AE rising towards 40 per cent.
“In our survey report, we make a number of recommendations that we hope the Government will consider in its 2017 AE review, including reducing the earnings trigger to boost the numbers eligible for AE, and measures to simplify and add greater flexibility – particularly when minimum contributions are set to rise in 2018 and 2019. We also believe that the Government, given the uncertain economic backcloth, may need to plan ahead and build in both tax and NI adjustments into future spending plans so as to encourage greater private pension saving in the years ahead.
“The Government needs to be absolutely straight with the public. The new State pension, whether triple or double locked, will not provide anything like an adequate retirement income for the vast majority of people. Without private pension savings, very many people will continue to rely on other State benefits in retirement, the level of which and their persistency being very uncertain. And, whilst we would like to see greater flexibility as to when the State pension can be drawn, the expectation must be that the State Pension Age will move upwards in the years ahead, doubly underscoring the need for greater private savings to be encouraged at all income levels by public policy.”
“The survey results make it absolutely clear that the pensions industry and Government must increase their efforts to convince the public of the essential need to save more for their later years. This may involve many people having to review their spending patterns and life-style choices. Whilst we sympathise with the financial pressures on businesses of all sizes in supporting higher pension contributions, employers too need to help more, particularly if the Government and Regulator contribute respectively through fiscal measures and applying genuine simplicity. What as a society we cannot afford to do is to accept that millions of private sector employees are totally financially unprepared for their retirement years.”