Labour proposes lowering automatic enrolment threshold to widen pension provision

30 May 2014

In a speech to the Resolution Foundation, Shadow Work and Pensions Secretary Rachel Reeves said that essential elements in labour’s ambition are ensuring that those who can work are in work, that work always pays and that our social security system rewards responsibility and contribution. She also said that nowhere are these values more important than in the area of retirement and pension provision.

The Labour Party has been setting out practical policies that can turn this vision into reality in the twenty-first century and Reeves’ speech was all about the important part that pension reform has to play in that. The two challenges she set out were ensuring that everyone is able to save, and making sure that all savers can get value for money from those savings.

On the first point regarding the ability to save, the focus was on making it easier for those in low paid and irregular work to save and how labour wants to bring those 1.5 million workers who are below the automatic enrolment earnings threshold, back into workplace saving. Promising to consult with employers, trade unions and pensions experts about the best way of doing this, but saying that she believes we should be broadening, not narrowing, the scope of auto-enrolment enabling more people on low and modest incomes to save for their retirement. Reeves said:

“Someone just below the auto-enrolment threshold with annual earnings of just under £10,000 would be missing out on £338 going into their pension every year, half of which would be contributed by employers and the government.

Over a full working life, even if they remained at that low level of earnings, that could deliver a pension pot of around £19,000.

The situation is even more stark and anomalous for someone working more than one job. A worker earning £9,000 for doing one job and the same for another would not be auto-enrolled in any occupational scheme, missing out on around £600 of pension saving every year.

It’s another instance of the government failing one of the key tests that the Pensions Commission set, that our system of pensions provision should work for women as well as men.

Women are also the main losers from the current rules on qualification for the full state pension that mean those with more than one job paying below the Lower Earnings Limit for National Insurance are excluded even if their total earnings exceed the limit.”

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