The pensions industry has broadly reacted positively to the news that MP Richard Holden plans to introduce a private member’s bill that would detail a roadmap to extending auto-enrolment (AE).

The bill will aim to outline the steps to lowering the age threshold of AE to 18 and remove the lower qualifying earnings limit by 2026, as suggested in a report published by think tank, Onward.

It estimated that an additional £2.77trn could be saved into pensions due to the proposed changes.

“The current AE system disproportionately disadvantages younger workers, part-time workers, and those with multiple lower-paid or part-time jobs,” stated Aviva director of workplace savings, Emma Douglas.

“These proposed changes to AE could make a real difference to the future retirement plans of today’s lower-paid and part-time workers as everyone who is in a pension scheme will get a contribution from the first pound they earn.

“However, the target date of ‘mid 2020’s’ can only be achieved if a roadmap is agreed now. Employers and employees need time to plan. The clock is ticking and the longer it does, the less there will be in the pension pots for those who might need it most.”

B&CE, provider of The People’s Pension, director of policy, Phil Brown, added: “We have long argued that younger workers should be given the opportunity to save for an extra four years towards their retirement and we trust that the government will honour its proposals to lower the age threshold for AE from 22 to 18 once economic circumstances allow.

“It makes complete sense to allow workers to benefit from auto enrolment for the entirety of their adult working lives as well as making these savings count from the first pound earned. AE has been a huge success so far, enabling more than 10 million more workers to put money into a pension but wider reforms are needed to ensure the system is fairer for all.”

Pensions Management Institute director of policy and external affairs, Tim Middleton, noted that whilst the changes Holden is seeking to introduce were to form part of the reforms the government had pledged to make by the mid-2020s, he should be “congratulated for recognising the urgency needed” to drive pension policy and seizing the initiative.

“It is hugely encouraging that one of parliament’s younger members should be prepared to take such a bold approach to pensions saving, when most politicians are preoccupied with other matters,” he added.

Hargreaves Lansdown senior pensions and retirement analyst, Helen Morrissey stated that Onward’s report gave “2.77 trillion reasons why we need to see further reform to AE”.

She continued: “Changes to age and earnings limits mean workplace pensions can be accessed by millions more people who could see their pensions increased by thousands of pounds. The idea of contributing to a pension as soon as you start work will also become normalised.

“However, up until now government has only said it will look to make changes by the mid-2020s – we need a more concrete roadplan and this report gives a clear path for how the government can do this. There is a tricky balancing act to be struck between bringing in much needed change while giving businesses time to prepare and the phased four-year approach outlined here does exactly this.”

Now Pensions head of campaigns, Samantha Gould, added: “We very much welcome the recommendations put forward in today’s 10-minute rule bill.

“This year marks a decade since auto enrolment was introduced in the UK and it undoubtedly has been a major success in allowing millions of people to save into a pension for the first time.

“However, while more people have the opportunity to save, the number of underpensioned people has grown to 2.8 million people.

“Underpensioned groups such as single mums, carers or people with disabilities don’t choose to be underpensioned, but the current rules mean they’re not eligible to be auto-enrolled."

However, industry support for short-term change was not universal, with Quilter head of retirement policy, Jon Greer, stating: “While there is no disagreement that AE has been a resounding success and that the government should consider expanding it to those not currently captured by the legislation, it doesn’t seem that making the change in the short term is appropriate.

“There is still considerable uncertainty in the economy, particularly in those sectors that tend to employ lots of younger workers on fewer hours, including hospitality. The increased costs associated with expanding AE in these sectors will likely be unpalatable for the government at this time, particularly as they are also being lobbied for a support package for the businesses most impacted by tighter restrictions.

“Implementing a lower age for AE at this time also risks increased opt-out rates and poor engagement given the rather precarious financial situation of many young people at the moment.

“We know that young people were more likely to work in sectors shut down by the pandemic last year, so are more likely to be in a more financially vulnerable situation. Indeed, our recent research conducted with YouGov found that one in five people aged 18 to 24 thought their current finances and earnings were not enough to allow them to manage their daily expenses during another lockdown.

“It seems logical that many young people will simply choose income now rather than income later and may decide to opt out.”

AJ Bell head of retirement policy, Tom Selby, noted that although the reforms might seem like a no-brainer from an employees’ perspective, the government will be wary that expanding AE will come at a cost to businesses.

He continued: “Given the significant strain many firms have been under for the last two years as a result of Covid and the subsequent national lockdowns, laying extra pension costs at their doors now might risk subduing the UK’s economic recovery. Waiting a year or two so that, hopefully, the economy is a little less fragile may well be the preferred option.

“There is also a genuine debate to be had over whether all employees, regardless of earnings, should be auto-enrolled into a pension.

“For very low earners in particular it is likely immediate priorities – such as paying bills and building up a rainy-day fund if they can afford to – will be more important.

“The need to build greater short-term financial resilience – exposed so brutally by lockdown -may be considered at least just as important as boosting longer term savings.”

Share Story: