Government to consider charge cap extension in auto-enrolment review

Parliamentary Under Secretary of State for Pensions Richard Harrington (pictured) said he planned to include the charge cap review in the wider review of auto-enrolment, which launched on 12 December.

Under current rules, charges for funds used in auto-enrolment schemes must be capped at 0.75%. Harrington said, however, that the government would look at the level of the cap as well as whether some or all transaction costs should be covered by the cap.

Contribution Levels Unchanged

The government has meanwhile said it would not change the contribution levels currently in place until after the review at the end of 2017. Contributions are set to rise to 8% by 2019.

It has also frozen the current threshold at which workers start to be automatically enrolled at £10,000 for the coming year. It will, however, examine the trigger and the qualifying earning bands required for auto-enrolment, it said.

Earnings thresholds for the coming year have been set at £45,000 for the upper limit and £5,876 for the lower limit.

Hargreaves Lansdown had urged the government to revise the current £10,000 earnings threshold at which auto-enrolment kicks in, ahead of the review, in order to include lower earners and part-time workers. It had also advised the removal of the qualifying earnings benchmark altogether to enable more people to save.

Helping The Self-Employed

The government said it aimed to ensure auto-enrolment continued with its current success, as well as looking at ways to include groups currently excluded from the policy, such as the self-employed and people with multiple jobs, which do not meet the relevant criteria.

So far, about seven million people have been automatically enrolled by more than 293,000 employers, the government said, leading to nearly £82bn being saved into workplace pensions last year.

Eligible workers earning between £10,000 and £20,000 now have a participation rate of 65% – an increase of 30 percentage points from 2012.

The government expected a total of 10 million people to be newly saving or saving more by 2018, generating about £17bn a year more in workplace pension savings by 2019/20.

Secretary of State for Work and Pensions Damian Green said: “Pensioner poverty has more than halved since the late 1980s, which is a record to be proud of. We need to secure this legacy for future generations.

“After years of people not saving enough, automatic enrolment is helping millions of people, many of whom are low earners, benefit from a workplace pension. This will continue to boost retirement pots and help safeguard people’s standard of living in later life.”

The government will start engaging with the industry in early 2017, followed by policy recommendations to be published by the end of the year. The review work will be led by the DWP and supported by an external advisory group made up of experts from within the pensions industry.

‘Opportunity To Set Direction’

According to Pensions and Lifetime Savings Association chief executive Joanne Segars, the 2017 review is an opportunity for the government to set a direction for the next decade of automatic enrolment.

She added: “This should include the creation of an independent commission to advise on how and when to increase contributions in future as well as careful consideration of the current coverage of automatic enrolment.

“With more than two years to go until automatic enrolment is fully rolled out though, we need to focus on the immediate jobs in hand – bringing hundreds of thousands of small employers and millions more savers into workplace pensions, and making sure opt-out rates do not increase as contribution rates rise to 8%.”

Aegon head of pensions Kate Smith called for the review to address what she called “a current injustice”, explaining: “Some schemes do not claim tax relief for low earners who do not pay income tax.

“With the starting point for paying income tax rising to £11,500 in 2017/18, and the auto-enrolment salary trigger staying at £10,000, there will be a greater number of individuals who are auto-enrolled that do not pay income tax. This makes it imperative all schemes move to a ‘relief at source’ basis so low earners receive the government boost they are entitled to.”