Following this morning’s news that the Extension of Automatic Enrolment (AE) Bill has passed its Third Reading in the House of Lords and received Royal Assent, this gives clear implications for the direction of travel for today’s workers as well as for UK retirement provision in future – and is already being warmly welcomed by those across the UK pensions industry.
Pension experts have been sharing their reaction to today’s news with IFA Magazine as follows:
Kate Smith, Head of Pensions at Aegon responds to the news that the Private Member’s Bill to extend auto-enrolment (AE) has cleared parliament and been granted Royal Assent as she comments: “Today is a momentous day in the journey of auto-enrolment and for pension savers, especially for low earners and younger workers. The Pensions (Extension of Automatic Enrolment) (No 2) Act, will, in time, widen the scope of automatic enrolment bringing in those aged between 18 and 22, so pension saving becomes the norm for younger employers and the extra four years of saving may help to close the gender pensions gap.
“Equally importantly, contributions will be based on the first £ of earnings rather than on a band above £6,240 will mean contributions from both individuals and employers increase, leading to larger pension pots in later life. Employees pay 5% so this equates to an extra £312 a year, but after-tax relief, this is just over £20 a month. But with employer contributions, this will be boosted by £499 a year extra.
“The next step is to implement the changes, and the expectation is that the government will consult on an implementation plan imminently. We believe this should be carried out over two to three years starting no later than April 2025 on a phased basis so that employers and employees can get used to the increased contributions. Otherwise, someone earning £12,480 would see their contributions double overnight.
“11 years after the start of auto-enrolment and almost six years on from the 2017 independent review of auto-enrolment, finally much-needed improvements will be made to auto-enrolment. But it shouldn’t stop here. The 8% auto-enrolment contribution, even without the offset, lures people into think they are saving enough to provide an adequate income in retirement. For many this this won’t be the case. Change takes years, from consultations, to legislation, and finally to implementation. It’s time to start thinking about increasing auto-enrolment contributions to 12% of earnings, equally spilt between employers and employees, with solutions for those on the lowest incomes.“
Katharine Photiou, Managing Director of Workplace Savings at Legal & General said:
“It’s fantastic to see this Bill receive Royal Assent. The changes, that we fully support and have previously called for, will boost the number of people enrolled into a workplace pension and the amount they save for retirement. The lowering of the pensions auto-enrolment age from 22 to 18 and the scrapping of the lower earnings limit will see people benefitting earlier and from the very first pound that they earn.
“Looking at the impact of these changes on retirement pots, we have mapped out what the eventual pension pot size would be at retirement for 18-year-olds coming into the workforce under the new reforms, compared to those that were auto-enrolled at the age of 22 under the current legislation. If the changes were to be implemented tomorrow, the average man saving into a pension now would have an additional £430,694 in their pension pot once they reach 65, a 47% increase in the value of their pot. Whilst a woman would see their pension pot grow more significantly but from a much lower starting point: an 87% increase, which amounts to an additional £378,997 in pension savings by the age of 65.
“Now that the Bill has received Royal Assent, the Government will launch a consultation later in the year on how best to implement these changes. One scenario could be phasing the implementation of changes over three years, which would see the value of pension pots for a man increase by £420,296, and £369,199 for a woman.
“Whilst the reforms go some way to closing the gender pensions gap, still more needs to be done to level the playing field. We think there is an opportunity to explore the issue of people, often women, working multiple jobs. These are often people who earn above the £10,000 auto-enrolment trigger if you totted up all their income but earn less than this in each individual job. These people often slip through the net which leaves multi-jobbers and freelancers and those who are part of the gig economy missing out.”
Gail Izat, Managing Director for Workplace at Standard Life part of Phoenix Group said: “It’s so positive to see the government get behind pension saving and pass a bill that will enable people to save right from the start of their careers and save from the first pound of their earnings. The ability to start saving four years earlier will boost the pension people retire on by tens of thousands of pounds, and when combined with removing the lower earnings limit, the changes will make a significant difference to people’s retirement outlook. While the change represents a new era for auto-enrolment, an 8% contribution rate will only take savers so far and it’s clear that increasing both employee and employer contributions to 12% when possible is the missing piece of the puzzle when it comes to reducing under-saving and boosting retirement incomes outcomes even further.”
A spokesperson for The Pensions Regulator (TPR) said: “We welcome the news that the Private Members Bill on the extension of automatic enrolment has been granted Royal Assent today (18 September).
“We are proud of our contribution to the successful roll-out of AE and look forward to continuing to work closely with DWP on the next steps to extend the AE framework for the benefit of millions of workers. We will ensure employers, pensions schemes and the wider supporting market are well-prepared to successfully implement these important changes.”
Becky O’Connor, Director of Public Affairs at PensionBee comments: “Today’s decision to lower the age restriction and the lower earning limits linked to Automatic Enrolment is an important milestone in helping boost private pension provision and encourage long-term savings habits. Today’s workers will be working longer before they get the State Pension and need more private pension income to fill any ‘Pre-State Pension gap’ they are likely to face, as well as provide an adequate income after they start receiving the State Pension.
The contributions made earlier in working life can be the most valuable because of compound growth and while retirement can seem a long way away for those just starting their careers, this will help them get on the retirement ladder easily and affordably.”
Patrick Luthi, CEO of NOW: Pensions, comments: “We welcome the swift passage of the Extension to Automatic Enrolment (AE) Bill through its Third Reading in the House of Lords. Step by step, we are getting closer to the day when the 2017 AE reforms will become a reality.
“The news may pass unnoticed in the majority of workplaces, but it will ultimately become a cause for celebration for thousands of workers who stand to benefit, particularly the youngest generation who can get a head-start on their retirement savings journey.
“We’ve been long standing partners with Debate Mate, an online debating platform for students aged 6 to 16 and believe the earlier children begin to have positive relationship with money, savings, and budgeting, the more likely it is to have a positive impact on their financial futures. Our recent research showed 86% of over 1,000 young adults (aged 11-27 years) supported the Government’s proposal to reduce the age of automatic enrolment from 22 to 18.
“We look forward to the Government consultation which the Pensions Minister has indicated will follow this Autumn, so reform can be implemented as soon as practical. It will be essential for Government to work openly and collaboratively so that savers, employers, schemes, and industry can plan for a successful implementation.
“This is an important step in the right direction, but it’s equally important that Government keeps its eyes on the wider challenge of long-term strategy and adequacy which must still be tackled to create a pensions system which is fair for all. A formal review of AE is essential to establish a consensus on issues such as scope and contribution levels, so AE continues to evolve and remains relevant and fit for purpose.
“We are one of the very few UK workplace pension providers who accept all employers and their employees into the scheme, and many of our members are lower earners. We have long taken an interest in how to improve members’ savings, including working with the Pensions Policy Institute (PPI) to assess the pension savings gap and address the issue of chronic under-saving for retirement. We believe the policy needs to work for all eligible workers to avoid millions falling short of the retirement they deserve.”
