Government urged to scrap £10,000 AE trigger

The government should scrap the £10,000 auto-enrolment (AE) trigger as part of measures to improve retirement outcomes for the self-employed and multiple job holders, Now Pensions has said.

The workplace pension provider made the claim off the back of research conducted in collaboration with the Pensions Policy Institute (PPI), which found that the average pension wealth of the two groups, which include many who slip the the AE net, was being outstripped by the UK average.

The average private pension wealth for 55 to 69-year olds with multiple jobs who earn less than £10,000 in each role just 6.1 per cent of the average man’s, while the average self-employed retirement saver had managed to save just 77 per cent of the average male pension.

Now Pensions chair of trustees, Joanne Segars, commented: “AE has proved to be a huge success in getting vast numbers of working people in the UK saving for their later life, with just over 10 million now enrolled.

“However, there is an additional five million self-employed workers who are locked out of workplace savings and given no support, or incentive, to start saving for their retirement.

“Now Pensions is calling on the government to make significant policy changes to improve the later life outcomes for the self-employed and multiple job holders, especially as the Coronavirus pandemic is set to vastly increase the number of people working multiple part-time jobs.

“One key policy change would be to scrap the £10,000 AE trigger. If AE were to start from £1 of earnings and include cumulative income from multiple jobs this would allow 106,000 people to benefit and increase pension wealth by 175 per cent.”

The research, which will be published in full by the PPI in December, demonstrated that multiple job holders earned an average of £16,750 per year, 39 per cent less than the UK average.

Consequently, the group receives 46 per cent less than the baseline population’s pension income, just £210 a week compared to £390 a week, even when including the state pension and other benefits.

Now Pensions found that 85 per cent of the self-employed did not save into a private pension, with this figure having grown from 73 per cent in 2008/09, while pension participation rates stood at just 19 per cent even amongst the highest paid self-employed workers.

This compares with the around three quarters (71 per cent) of multiple job holders who were found to save into a private pension, possibly as a consequence of being caught up by AE.

The report found that two decades of being self-employed resulted in an individual’s average retirement income dropping to 53 per cent of the UK average.

Age was not found to have a material impact on a self-employed or multiple job holding individual’s likelihood of engaging in pension saving, with the research finding that less than a quarter (23 per cent) of self-employed 60-64 year olds were members of a scheme.

Association of Independent Professionals and the Self-Employed director of policy, Andy Chamberlain, said: “This research is both very valuable and very concerning, chiming with our own past findings about the lack of pension saving among the self-employed.

“The reality is that the fluctuating incomes of the self-employed (particularly amid the financial turmoil of the pandemic) mean that rigid pension schemes such as the auto-enrolment programme simply do not work for them.

“The self-employed need flexible pension plans that allow them to draw down on their savings when they need them. For both the self-employed and workers holding multiple part-time jobs – and anyone else whose style of work is not suited to rigid pension plans – it’s important that more flexible, accessible savings options are made available.”

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