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Never mind the Brexit, here’s the pension strategy

Tom McPhail
pension strategy

At least one bit of the government is moving forward with purpose: Two papers in one day from the DWP, an auto-enrolment evaluation report (and a strategy paper on helping the self-employed save for retirement

Contributor Tom McPhail, Head of policy – Hargreaves Lansdowne.

Pension reform in recent years can be summed up as good progress but still lots to be done. We know a key to increasing contributions is good employee engagement; research has shown it is already possible to get over half of employees to increase their savings voluntarily, just by talking to them effectively. We’d also like to see individuals given more control of their pensions; they shouldn’t be forced to change their pension every time they change jobs. This is particularly important for the self-employed, given the vast majority of them go through employment at some point in their working lives and the average age for starting self-employment is 32.”

Since 2012 9.9 million workers have been automatically-enrolled into workplace pensions, with the help of over 1.4 million employers. The number of eligible employees participating in a workplace pension has increased from 10.7 million in 2012 to 17.7 million in 2017. The annual total amount saved by eligible employees stands at £90.3bn in 2017, which is an increase of £4.3bn from 2016.

Opt-out rates have remained low, at around 9% of members, however the data covering the impact of any possible increase in opt-out as a result of the increase in contributions in April 2018 isn’t yet as complete as for previous years. Nevertheless, ahead of the next planned increase in contributions in April 2019 (up to 3% employer and 5% from employee), the signs are that the great success of auto-enrolment continues undiminished.

There are still some outstanding issues. There are still over 9 million employees who haven’t been enrolled due to their ineligibility (for example earnings in that employment below the £10,000 threshold).

Contribution rates are still too low for many to be able to look forward to a well-funded retirement. Based on current data, from April 2019 only around a quarter of private sector employees will be saving more than 8% of their income into a pension; well below the 12% to 15% most should be aiming for.

The self-employed
The growth in self-employment has been mirrored by a catastrophic decline in their pension saving; down from 30% participation in 2007/08 to just 14% of self-employed paying into a pension today. The Government made the bold commitment in its 2017 election manifesto that it would address this by extending the benefits of auto-enrolment to the self-employed. Unfortunately there is no magic bullet solution here to match the auto-enrolment revolution from which employees are now benefiting.

The Taylor review of employment proposed auto-enrolment via the tax system but the government has never been keen on that. Instead they are now looking at field-trials around different engagement messages to encourage the self-employed to resume or maintain their saving.

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