Three-quarters of employers would support pensions tax relief changes if they provide more help to lower-paid earners, according to the Association of Consulting Actuaries (ACA).
Its 2018 Pension Trends Survey unveiled today (2 January) of 349 employers found 59% noted current pension tax structure “needs to be simplified”.
From April, low-paid earners in net-pay schemes will lose out on more pensions tax relief as the gap between auto-enrolment (AE) qualifying earnings and the personal tax allowance increases. It follows concerns from the likes of the Treasury Committee, which called for “fundamental reform” of the current system last year. The government rejected this noting there was “no clear consensus”.
The survey also found that the median cessation rates – those leaving AE schemes during and after the initial four week opt-out period – were in the range of 11% to 15% of eligible employees. It further found between 26% and 30% of employees were not eligible to be enrolled into a pension scheme, rising to between 36% and 40% of those working for smaller employers.
The survey was conducted in July last year and covered 550 pension schemes, with over half of responses coming from smaller firms employing fewer than 250 employees. Over a quarter of organisations had 1,000 employees or more.
The report further noted that the median opt-out rate of employees at AE staging was between 6% and 10%, rising to between 26% and 30% at employers with fewer than 10 employees.
A large majority (88%) of employers said the April 2018 increase in minimum AE contributions did not have an adverse impact on scheme participation, backing Department for Work and Pensions’ (DWP) data that opt-out rates at the end of June 2018 “remained consistent” with pre-hike levels.
A further three quarters of respondents forecasted no decrease in contributing members as a result of the April 2019 rate hike.
Some 81% of employers supported government proposals to extend AE to those aged between 18 and 22, with 47% agreeing that contributions should be increased beyond this year’s rate. Under half (43%) noted that contributions should be from the first pound of earnings.
ACA chairwoman Jenny Condron said there is a need for a “gradual” but “essential” increase in contributions, rising to between 12% and 14% of earnings by 2025.
“This is needed to ensure that many more people save sufficient amounts for both an adequate retirement income and one where they have real choices to spend some of their accumulated savings as they approach or reach retirement.”
She added: “At the same time, actions are needed to draw more of those on lower incomes and the self-employed into AE levels of contributions, beginning with the gig economy’s quasi-employers.”
Last month, the DWP announced it will develop and test new ways to include 4.8 million self-employed workers in pension savings.