31 March 2017
Even the government can be susceptible to the seven year itch!
It has decided that it is time for the Department for Work and Pensions (DWP) to undertake a root and branch review of the workplace pension automatic-enrolment (AE) regime seven years after setting out the original parameters.
It has been decided this will take place throughout 2017 and will report back to the government by the end of the year.
It is with some pride that we are able to report that Chase de Vere is one of only a select number of advisory firms to be consulted with by the government during this process, and we have already been involved with the policy team in meetings with the DWP and The Pensions Regulator.
But it is important that the feedback we give does not consist just of the views of our technical experts. We are also very keen to convey opinions from employers actually working at the coalface. So the message to all those who feel they have anything to contribute is to get in touch as soon as possible.
One area in which the opinions of employers are likely to be particularly valuable is regarding any simplifications that they feel need to be made to the processes they have to undertake.
In particular, the need to check at each and every payroll that employees who formerly weren’t relevant to AE haven’t now met the eligibility criteria might well seem unduly admin-heavy, but any employer failing to do this could fall foul of the regulations. For example, an employee earning only £8,000 could easily exceed the £10,000 threshold if they are covering for a sick colleague. So maybe there could be a better way of doing things?
The £10,000 threshold is in fact a massive issue on a number of fronts. The original rationale for it was that those earning below £10,000 get disproportionately better replacement from the State pension and so have less need to increase their retirement income. But the threshold excludes many part-time workers from pension saving.
It can also be particularly harsh on those with more than one job. Since the 2008 financial crisis it has become increasingly common for people to find themselves having to do two or three different jobs just to survive. But if none of these jobs pays more than £10,000 they will not be eligible for an auto-enrolled pension scheme.
Another point to consider is whether it is actually necessary to have three different employee classification categories for AE. These are: earning under or equal to the lower earnings limit for NI, earning between the lower earnings limit and £10,000 and earning over £10,000. Might it not be simpler just to have two categories?
Additionally, we are keen to hear the objective views of our clients on whether they feel the government should be making any changes for the self-employed – who are currently outside the scope of auto-enrolment.
According to the Office for National Statistics (ONS), the number of self-employed people in the UK has rocketed from 3.2 million in November 2000 to 4.77 million in November 2016. Last year alone the numbers increased by 213,000. Yet, the more self-employed there are, the fewer of them there are that seem to contribute to a pension!
According to the records of pension providers submitted to HMRC, the number of self-employed people paying into a pension more than halved from 1.1 million in 2003/4 to 450,000 in 2013/4. So, given that AE has clearly been proven to work as a concept, maybe the net should be widened to include the self-employed?
Input on AE contribution levels would also be welcome because, although it’s unlikely the review will change the current structure for now, it will probably be giving thought to whether it should do so in the future. Consideration of the appropriate balance between employer and employee contributions is likely to be a particular area of focus.
We are determined that our clients’ voices should be heard, so if you have any feedback to offer on these or any other AE related issues please do not hesitate to input your opinion by contacting your usual Chase de Vere adviser or by completing this simple form.
The Financial Conduct Authority does not regulate some aspects of AE.