‘Further action’ needed to improve AE – Now Pensions

Now Pensions has identified areas where further action should be taken to improve auto-enrolment, including tackling the net pay anomaly and amending ‘qualifying earnings’.

In a written response to questions from Work and Pensions Select Committee chair, Frank Field, Now Pensions director of policy, Adrian Boulding, noted that there was “little doubt” that AE had improved the UK pension landscape, “but it is clear there is further to go”.

The DC master trust highlighted the “very unfair” net pay anomaly as an area to improve, where employees in relief at source schemes who are not taxpayers receive 20 per cent tax relief on their contributions, while those in net pay schemes do not.

Furthermore, Boulding noted that the policy of paying contributions on ‘qualified earnings’, rather than a worker’s full salary, should be addressed.

He wrote: “The first £6,032 of annual earnings at each job are excluded from contributions, so sadly when we appear to reach 8 per cent contributions in April, nobody will actually receive the full 8 per cent.

“We believe that 'eight should mean eight'. Although government had indicated an intention to eliminate qualifying earnings in the 2017 auto-enrolment review, they appear to be travelling in the wrong direction at present.”

Boulding also agreed with the government’s suggestion that extending AE to younger age groups would improve the system, Now Pensions believed that it “warrants further and more immediate action” than the government-proposed mid-2020s.

The master trust explained that, due to master trusts being relatively new entities, many Now Pensions scheme members have relatively small pension pots.

“We believe there is more the government could do to support workers with very small pension pots,” Boulding continued.

“It could reconsider introducing a ‘pot follows member’ scheme which would give members a simple, automatic, mechanism for consolidating their pension pots.

“It could add functionality to the pensions dashboard to help support the necessary data permissions that would both encourage and facilitate the consolidation of small pension pots.

“A third possibility would be to reinstate refunds to members who have saved very small amounts before leaving the scheme for another employer.”

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