DWP seeks collective agreement for AE reform; concerns grow over mid-2020s goal

Pensions Minister, Laura Trott, has suggested that a timeline for the 2017 auto-enrolment (AE) reforms will be set out once a collective agreement has been reached, amid concerns over the ability for the government to meet its mid-2020s deadline.

Responding to a letter from Work and Pensions Committee (WPC) chair, Stephen Timms, Trott emphasised that the reforms remain an "absolute priority", with the government looking bring forward legislation "when parliamentary time allows".

Trott also provided further reassurance during a House of Commons debate yesterday (7 February), suggesting that she is keen to set out a timeline once there is collective agreement.

She stated: "The 2017 recommendations will change the landscape for the better. They will enable people to save for longer and begin their savings journey from the first pound of their earnings.

"That will give younger people and people in part-time jobs, particularly women, the opportunity to be brought into the world of pension savings for the first time.

"I know the committee is keen for me to set out a timeline. I, too, am keen to set out a timeline, and as soon as I have collective agreement I will come back to the committee and the House of Commons to announce that."

However, Timms pointed out that the "mid-2020s are approaching rapidly", suggesting that legislation is needed this year for the government's proposed timeline to be met.

In addition to this, Timms raised broader concerns over the current AE contribution levels, arguing that "the government now need to make the case for higher contributions".

Although the WPC's report had recommended that the government consult on a plan to deal with the issue around adequacy, the government's response stated that that now was not the “right time to consult” and that instead they would provide “further information and guidance”.

However, Timms argued that "many witnesses, including the then Pensions Minister, the hon. Member for Hexham (Guy Opperman), told [the WPC] that that would not work".

"[Opperman] told us that “the lessons of automatic enrolment are that default is the only way to get big interventions”, and he was absolutely right," Timms continued.

"The government now need to make the case for higher contributions. As things stand, people do not know that they are not saving enough.

"We need a plan to raise minimum contributions, perhaps with mechanisms such as Save More Tomorrow, where people commit in advance to contributing more as their pay rises in future."

Timms also explained that the WPC is "certainly not demanding that minimum auto-enrolment contributions ought to be raised now", but that the government should draw up and publish a plan for when that will happen, and build a consensus around it.

He continued: "The minister said she could not wave a magic wand. Nobody is asking her to wave a magic wand, but we are asking her to get a move on and bring forward the plan, so that people know what will happen in two, five or 10 years.

"The longer we delay, the larger the numbers will be of people who suffer a terrible shock when they reach retirement, start drawing their retirement income and discover that it is way below what they expected and what they need."

Timms also raised similar concerns around efforts to encourage greater pension saving amongst the self-employed, warning that some of the efforts in this area, such as prompts and nudges, could be "doomed to fail".

He stated: "A lot of people giving evidence to our inquiry argued for mirroring auto-enrolment, using the tax or national insurance system to auto-enrol self-employed people.

"It is very disappointing that the government have no plans to do either of those things. Instead, they say that they favour prompts and nudges through accountancy, plus opportunities from the Making Tax Digital programme, but none of that will be enough."

Responding to these concerns, however, Trott confirmed her intention to make retirement savings easier for the self-employed, highlighting a need for better understanding of the touchpoints through which the self-employed engage with the government, which will be the most effective at encouraging them to save into a pension pot.

"So far, the most obvious point is the tax system," she acknowledged, continuing: "We have begun work with the UK trade body for business software developers to help us better understand the software market and explore the opportunities, both current and new, to support self-employed people to save for their retirement.

"This includes scoping the feasibility of building and testing retirement savings solutions with incompatible software used by the self-employed to manage their money.

"We are also keen to explore and test hybrid saving vehicles that combine accessible and illiquid savings, which could preserve some control for individuals in managing their short-term finances alongside saving for retirement.

"The next stage of trialling will also build on the evidence from the work with HMRC to test the capacity of nudges to pension guidance systems installed within the existing assessment system, with a view to encouraging the self-employed to start saving."

Despite this, Trott again confirmed that the government has no intention to make automatic deductions for the self-employed via the making tax digital system, stating that while DWP welcome all ideas for boosting self-employed pension savings, it does not think that mixing them with the national insurance system is workable.

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