PLSA IC 21: 'Disappointing' that no AE plans included in Spring Budget

The lack of a long-term plan for auto-enrolment (AE) in the Spring Budget was “disappointing”, as progress needs to be made to ensure future generations do not retire into poverty, according to the Pensions and Lifetime Savings Association (PLSA).

Speaking at the PLSA Investment Conference 2021, PLSA Policy Board member, Laura Myers, said she could “understand” why Chancellor Rishi Sunak had chosen not to focus on AE in his Spring Budget as he was trying to “kick-start” the economy post-Covid, but argued that some sort of action plan needed to be laid out.

She continued: “I just think that it’s disappointing not to have a long-term plan for the further rollout of AE in the future. It feels really short term to not have these kind of priorities. I worry that the longer we don’t think about this or have a plan in place, the worse the situation gets for people.

“I know from doing one-on-ones and roundtables with members that people who are currently auto-enrolled think that the current level of contributions is right because it is government mandated. We all know that AE is not enough for people to get a decent standard of living in retirement, so both the scope and the amount needs to be looked at.

“It might be that some people can’t save more, or maybe there are a few who don’t need to save more, but many do and we need to start thinking about this or the next generation of DC-only savers are never going to be able to leave work as living on their pension would effectively be living in poverty.”

PLSA director of policy and research, Nigel Peaple, agreed, stating that PLSA research had found that savers thought the contribution rates were sufficient and noting that they were “almost being misled” by government policy.

PLSA Policy Board chair and Legal & General Investment Management head of defined contributions (DC), Emma Douglas, said: “Asking individuals and companies to pay more into pension schemes is not going to be popular right now. However, we still have not seen any action on the back of the 2017 AE review and there is a real worry that the can could be kicked down the road for some time to come.

“However, Pensions Minister Guy Opperman did mention ‘mid 2020s’ in his speech yesterday, so I am hanging on to that. Contributions from the first pound paid and lowering the age to 18 will really help a lot of low earners and those with part-time jobs, so this will be particularly useful for women and that is important given that the gender pension gap is increasing.”

She explained that the PLSA wanted to get to 12 per cent, rather than 8 per cent, for AE contributions, with these being split equally between the member and the employer, as well as coming with a mechanism to opt down if members would rather put less of their pay away for retirement.

Douglas added that the association had suggested a gradual phasing in by 2030, but admitted that results were unlikely to be seen in the short term.

She added: “Given the success of AE and the fact that even Covid didn’t increase opt out rates significantly, I do think increasing the contribution rate is going to be the best way to improve incomes in retirement, especially for younger generations of savers.”

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