The TUC has accused the Government of “dithering” on pension reforms, which is costing lower paid workers thousands of pounds in lost contributions.
It has calculated that if the Government sticks to its pledge to abolish the lower earnings limit (LEL), this could see an additional £2.6bn go into workers’ pension funds each year.
Currently the Government has only promised to remove this threshold by the mid-2020s, but it has not set any date for this change. As the TUC points out a six-year delay from 2022 to 2028 would mean those on lower wage brackets losing £12,000 each from their pension pot.
This includes contributions and projected investment gains.
The LEL is currently £6,000, which means earnings up to this threshold are not counted towards annual pension contributions collected through automatic enrolment into a workplace pension scheme. For the lowest earners this is can be a high proportion of their overall income.
Removing the limit would be particularly beneficial to the lowest paid. The TUC says workers on annual earnings of £10,000 would see the amount saved into their pension double every year if contributions were calculated from the first pound of earnings.
It adds if this was applied from 2022 rather than 2028, the added investment gains could boost their final pension pot by £12,000 in cash terms, or £6,000 accounting for inflation.
For a worker on annual earnings of £15,000, total annual contributions would rise by £500 with employer contributions soaring by 70 per cent.
Paul Nowak, deupty general secretary of the TUC says: “Automatic enrolment has been a great success. For the first time, many working people on low incomes have employers paying towards their old age.
“But the government needs to build on its success, so that every worker gets the pension pot they deserve.
“Our message to government is simple – stop dithering, deliver on your promises and ensure every pound earned by every worker counts towards their pension.”
Other pension campaigners are also calling for changes in the way tax relief is calculated on some workplace pension schemes. This has seen some low earnings miss out on this valuable additional contributions.
The TUC is calling for a change in the way workplace pensions are calculated for the lowest earners. As well as removing the LEL it also wants employers to make a bigger share of contributions for this group – paying a minimum of two-thirds.
It adds that it want the government to set out a “route map” to increase contribution levels to 15 per cent of earnings.
Currently AE contributions are set to rise to 8 per cent of earnings from April this year.
The TUC adds that it wants the workplace pension system to be a straightforward cost-effective way for people to turn their savings into a secure lifetime income.