PENSIONS
Is the new minister for pensions and growth going to grow automatic enrolment?
Henry Tapper, chief executive officer for AgeWage, discusses how the appointment of a new pensions minister could impact automatic enrolment (AE) P ensions haven’t been immune from the current political and market turbulence we’re encountering. What are the recommendations for changing AE, and what are the potential barriers?
Guy Opperman was fond of saying that there’s never a good time to increase AE. Former minister, Steve Webb, has echoed him by reminding us that AE was launched in the aftermath of the financial crisis, and in tandem with the implementation of the austerity policies that were in place throughout AE’s staging. So, the question that is in the new minister’s in-tray is unlikely to get a positive answer unless ramping up AE contributions and extending its scope can be deemed part of the growth agenda. Unfortunately, for the hopes of implementation of the 2017 reforms, the evidence so far is that workplace pensions have been slow to adapt their investment policies to include the kind of growth assets that can ‘build Britain back better’. Again, the big policy idea has been thwarted by the commercial reality that workplace pension providers compete for employer’s business on price, and the price of a product which includes private equity, credit and infrastructure assets is considerably higher than for using plain vanilla investments (typically in passive funds). So, Alex Burghart is unlikely to be able to promote AE as a means of getting growth into the UK economy. Which leaves the prospect of any major improvement in the coverage and depth of AE on hold. One ray of hope is a private member’s Bill, which was introduced by the member of Parliament, Richard Holden. Watch this space… n
Indeed, they have been branded both victim and villain of the piece. This article isn’t about the problems caused by the mini-budget, but about what, to payroll people, is the ‘business as usual’ of AE. The next big event for AE will be the implementation of the 2017 review commissioned by the government and announced as going live in the middle years of this decade. The lead time for the legislation to be implemented was assumed to be two to three years, which might, prior to the events this year, have seen it on the statute books this summer. However, the change of prime minister and reshuffle of the Department for Work and Pensions ministers now sees us with a new pensions minister (Alex Burghart), and Guy Opperman returning to the backbenches. More importantly for changes in AE, the new minister has swapped ‘inclusion’ for ‘growth’ as the extension of his title, suggesting his priorities will be more in supporting pensions as a feeder for the government’s growth agenda than as a means of including more people in AE. It will take some months for the new minister to get on top of his brief and the Pensions and Lifetime Savings Association (PLSA) is now arguing for implementation of the changes in the latter years of the decade, recognising that earlier promises have irrevocably slipped.
The PLSA is calling on the government to reform AE to get more people saving, such as: l younger people
l multiple job holders l gig economy workers.
It also recommends higher contributions (by removing band earnings and gradually increasing contributions from 8% to 12%, split evenly between employers and employees). This is so that people on median earnings are more likely to achieve the Pensions Commission’s target replacement rates. However, such policies have two major barriers to overcome. The first is the reduction in net disposable income among those savers who have increased borrowing costs, higher household bills and higher overall taxes (assuming tax thresholds remain frozen). Add to this negative real earnings growth and it’s hard to work out where the extra 4% of earnings will come from, if not from what will be seen as another corporate tax. The second barrier is, indeed, tax. Not only will an increase in mandatory contributions from employers with eligible jobholders be considered an extension of business taxes but the taxes foregone by HM Revenue and Customs (HMRC), especially where National Insurance is being lost, may make the burden of an extension of AE unfeasible.
| Professional in Payroll, Pensions and Reward | November 2022 | Issue 85 50
Made with FlippingBook - Online magazine maker