PPI automatic enrolment research for DWP review
15 November 2016
NOW Pensions commissioned the (Pensions Policy Institute) PPI to model a selection of scenarios that look at the effect of removing the qualifying earnings bands and removing the earnings trigger, in preparation for the Department for Work and Pension’s (DWP) automatic enrolment review in 2017.
The analysis is designed to help improve the discussion and debate on the automatic enrolment thresholds. The research does not make recommendations as to the appropriate direction of future policy, but is designed to provide independent evidence to allow policy development to be well informed.
In 2017 there will be a review of automatic enrolment. Although a number of aspects that were to be included have already been addressed, it is possible that the Department for Work and Pensions (DWP) will expand the remit to include other elements, such as the earnings trigger and the qualifying earnings band.
Analysis of the employed population from the Labour Force Survey identifies the number and the nature of people that will be affected by the removal of the earnings trigger and earnings band on contributions. Specifically:
- 3.3 million individuals would become eligible for automatic enrolment if the earnings trigger was removed.
- All members of an occupational pension scheme could be affected by an increase to minimum contribution levels.
- 77% of employees earning less than the trigger income are women.
- Over 50% of part-time workers earn less than the trigger income, and 81% of part-time workers are women.
- 70% of people are married at State Pension age (SPa) and household income will reflect this.
- Over 40% of employees earning less than the trigger income are in receipt of child benefit.
PPI’s modelling reveals:
- A full time worker earning the national living wage and making auto enrolment minimum contributions can expect a pension pot of £33,100 at retirement. But, if contributions were made on every pound of earnings their pot would increase by 87% and total £62,200.
- For somebody who takes a break to look after children from aged 26 to 32, works part time until 54 and then goes back to work full time, the uplift is greater. If contributions were made on every pound of salary then their pension pot would increase from £11,400 to £21,400 – an 86% increase. However, this would increase even further to £33,200 if the auto enrolment trigger were removed, a 190% increase on the current situation.
- For those with two part time jobs removing qualifying earnings would increase their pension pot by 140% from £20,800 to £49,700. Remove the earnings trigger and their pension pot would be boosted by up to 200%. Currently part-time workers miss out twice as a result of the qualifying earnings calculation. 4.4 million part-time workers earning less than £10,000 are women.
- While removing qualifying earnings would most benefit lower paid workers, it would improve outcomes for all. A median earner who works full time from aged 22 to retirement would see their pension pot increase 31% going from £92,300 to £121,400.
- The impact on a high earner is also marked, with the pot increasing from £172,500 to £244,200, a 42% increase.
The full report is available on the PPI’s website.