Govt faces calls for further reform as bill to extend AE faces third reading in HofL

The government has faced calls to go further on auto-enrolment (AE), as the Private Member's Bill to extend AE continues its passage through the House of Lords, with its final reading scheduled today (18 September).

The bill, which is sponsored by MP Jonathan Gullis and Baroness Ros Altmann, seeks two extensions to AE, abolishing the lower earnings limit for contributions and reducing the age for being automatically enrolled to 18.

Although there had been disappointment that the bill was unable to pass through parliament prior to the summer recess, the bill recently passed the committee stage in a debate that lasted less than 30 seconds.

Once the bill has been passed, the Department for Work and Pensions (DWP) will be required to carry out a public consultation on the proposed use of these powers to lower the minimum age and abolish the lower earnings limit.

Pensions Minister, Laura Trott, previously committed to consulting on these plans "as soon as humanly possible", with suggestion that a consultation could be launched as soon as this autumn.

Industry experts have been broadly supportive of the proposals, with analysis suggesting that these changes could boost savers' pensions by 150 per cent at retirement.

Indeed, Interactive Investor head of pensions and savings, Alice Guy, argued that while the changes seem small, they could be life-changing for many workers, making it much easier to save enough for retirement, especially for poorer workers.

"It’s great news that pension auto-enrolment rules will now include the youngest workers, as well as including all earnings up to £50,270," she continued.

“The changes are particularly good news for women and poorer workers, who often struggle to save enough for retirement. Poorer workers are disproportionately affected by the current system that excludes lower earnings from automatic pension contributions."

Quilter head of retirement policy, Jon Greer, agreed, arguing that "there is no doubt that these reforms are needed to adapt pension policy to the evolving needs of the workforce and an ageing population that may end up needing to lean on a pension for decades".

"In fact data out today, about the number of people living to over 100 shows that it has increased 127-fold over the past century,” he stated.

“These people have half their life to save (about 50 years) to support themselves in retirement for a third of their life (about 32/33 years). This is no mean feat and the government need to be doing everything they can to help people save as much for retirement as possible.

“The changes recognise the importance of starting retirement savings early and maximising the benefits of compound returns over time.”

However, Greer warned that, considering the enormous pressure on people’s finances, and particularly the young, the timing of the changes will be key, and the reaction of younger workers is unknown.

This has not been the only cause for concern, as industry experts have argued that further reforms are still needed, particularly in relation to the minimum auto-enrolment contribution levels.

Pensions and Lifetime Savings Association (PLSA) director of policy and advocacy, Nigel Peaple, stated: "This bill will provide the legislative footing to extend AE so a greater number of savers will have incomes, sufficient to meet their retirement goals.

“By making it a legal requirement for workers under 18 to be automatically enrolled and removing the Lower Earnings Limit (LEL), millions of people will get a better pension when they retire.

“However, for savers to reach an adequate income in retirement, further increases are still needed over the next decade so that AE rises from the 8 per cent pension contribution today to around 12 per cent in the early 2030s – split 50/50 between employers and employees.”

Guy agreed, arguing that the proposed changes are "only one step in the right direction".

"It’s important to bear in mind that you may need to save more than the minimum pension amounts to achieve a comfortable retirement," she continued.

"In the future, policy makers need to consider increasing auto-enrolment percentages above the current rate of 8 per cent, which is not enough for most people to achieve a comfortable retirement.”

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