Extension of auto-enrolment a step in the right direction for pensions - Ros Altmann

The Government committed to implement these measures by the mid-2020s, following the 2017 auto-enrolment review and Tory MP Jonathan Gullis introduced a Private Members Bill to fulfil that commitment.

Auto-enrolment has been a celebrated pension policy success. Pension auto-enrolment, based on Pension Commission recommendations that harness behavioural theory to ‘nudge’ people into pensions, has been a tremendous success since it started in 2012. It has brought over ten million more people into pensions and established the principle – which will be extended to younger employees too - that workers in this country can expect their employer to cover tax, NI and pension for them.

This bill ensures new regulations will be introduced, after consultation, to decide whether any minimum age, such as 18, is needed, although I would much prefer removing the lower age altogether. Why should 16 and 17-year olds be excluded?

Official statistics suggest over 600,000 workers aged 18 – 21 would benefit or even more if the minimum age is removed altogether. This can embed the pension saving habit earlier, rather than requiring younger people to ‘opt in’ to a pension, which means many do not bother. The earlier people start paying into a pension fund, the longer they have to benefit from the compounding of investment returns over time and build better pensions in later life. Currently, only around one third of those aged 18 to 22 are paying into a pension at work, whereas nearly 90 per cent of the over 22s are remaining auto-enrolled once they are put into the scheme by their employer automatically. Clearly, the behavioural nudge of auto-enrolment policy has a dramatic impact.

Replacing age 22 with age 18, still requires pension administrators to check when someone reaches their 18th birthday, which adds complexity and entails a risk of more young workers opting out of pensions as soon as they turn 18, if their take-home pay falls once they start pension contributions.

Employer contributions for lower earners who want pensions will be significantly higher. Instead of someone earning £10,000 a year receiving contributions on just the amount above £6240, i.e. on only £3760 of earnings, the full £10,000 will be used to calculate their own and the employer contribution.

Improving pensions for the lower earners and the young is welcome news but, of course, there is more to do. This includes ensuring all workers who earn below £10,000 a year, particularly people - mostly women - with more than one job, each paying under £10,000 a year who currently miss out altogether on auto-enrolment.

Nudge principles also need to be extended to the self-employed to encourage them to start a pension.

Baroness Ros Altmann is a British life peer and former pensions minister.