AE reform timetable needed 'without delay'; 2022 threshold phase-out 'unrealistic'

The government should consider a continued freezing, rather than phasing out, of the auto-enrolment (AE) earnings trigger and thresholds in April to help in the immediate term during the cost of living crisis, Aegon has said.

Whilst the government has faced growing pressure to take action on AE reforms, the firm acknowledged that it could be unrealistic to expect auto-enrolment thresholds to be phased out from April, given the cost of living squeeze on people's pay.

However, it also urged the government to publish a timetable to implement the 2017 AE Review recommendations “without delay”, emphasising that there is "increasing pressure" for action on the reforms, as shown by the recent Private Members Bill on AE reforms.

The bill, which is set to undergo a second reading on 25 February, called for the AE lower age threshold and the earnings trigger to be abolished over a four-year period, concluding in 2026.

Indeed, Aegon head of pensions, Kate Smith, warned that too many people are currently excluded from auto-enrolment, as they "are too young, too old, don’t earn enough or are self-employed."

Smith emphasised that the 2017 recommendations would not only widen the scope of auto-enrolment, bringing in younger workers, but also enable more people to save more.

She continued: "The world of work has shifted dramatically since auto-enrolment was first designed in 2008 with the rise of the gig economy, zero hours, and the self-employed, Brexit, then Covid-19."

"The 2017 review recommendations has been talked about for over four years now, it’s high time that the government puts a plan in place. Not doing so is a missed opportunity to level up the world of work."

Smith also noted that the £10,000 a year earnings trigger was originally aligned with the personal allowance, until it was frozen on 6 April 2014.

"As the value of the earnings trigger has been frozen in real terms it’s meant that thousands more low-paid workers have been auto-enrolled into a workplace pension, benefitting from an employer’s pension contribution helping them to build a lifetime of financial security," she explained.

"If the earnings trigger had continued to increase in line with the personal allowance today it would be £12,570, with thousands more low paid workers, including those with multiple jobs with each one less that £12,570, would have been left out in the cold."

Smith acknowledged that there is increased pressure this year for the government to implement the 2017 review recommendations when reviewing the AE thresholds, with the first step being the continued freeze of the earnings trigger from April 2022.

"It’s unrealistic to except these thresholds to start to be phased out from April given the cost of living squeeze on people’s pay," she clarified.

"But to commemorate the 10 year anniversary of AE, the government should start to look at making AE more inclusive by making pension saving the norm for all and fit for the modern world of work by publishing a timetable to implement the review recommendations without delay.”

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