PLSA calls for AE reform in upcoming Budget

The Pensions and Lifetime Savings Association (PLSA) has published a list of pension policy recommendations it believes the government should consider in its upcoming Budget and Spending Review.

It called for an increase in the minimum auto-enrolment (AE) contribution rate to a total 12 per cent of salary over the 2020s, with consideration of moving to a 50/50 split between employers and savers.

The association stated that this will ensure that pension saving remained affordable for both savers and employers.

As a first step, it urged the government to introduce legislation for extending AE to workers between 18 and 21 and removing the lower earnings limit so people start saving from the first pound of earning, as outlined in the AE 2017 Review.

Pensions Minister, Guy Opperman, recently confirmed this policy change would be made in the mid-2020s.

The government was also encouraged to address the net pay/relief at source anomaly, which the PLSA said was resulting in around 1.5 million lower earners in net pay schemes missing out on tax relief.

It stated that it continued to believe that a central solution, the P800 process, operated by HMRC, “would deliver the sort of comprehensive, efficient, cost-effective solution we believe necessary”.

On responsible investment, the PLSA said it would like the government to “keep an open dialogue” with the pensions industry as to how schemes can best support the government’s agenda in moving to a greener economy.

Finally, the PLSA urged the government to not undertake any fundamental reform of pensions tax relief.

It has been rumoured over the past year that the government may look to pensions tax relief to provide additional funds as the country recovers from the Covid-19 pandemic.

However, the PLSA warned that tax relief acts as an “important incentive” for people to save, and that no single reform or the current system is perfect.

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