Phase out auto enrolment lower earnings limit and trigger
03 April 2017
The Tax Incentivised Savings Association (TISA) is calling on the government to 'phase out' the qualifying earnings lower limit and earnings trigger, so that potentially all earnings will qualify for pension contributions.
Evidence continues to be analysed by government for the 2017 automatic enrolment review.
TISA, the investments and savings membership association say in their press release that there is plenty of evidence confirming that a high percentage of individuals do not understand pensions or tax relief. They believe engagement with employees will be crucial as the industry completes the staging of small employers and increases minimum contribution rates.
TISA believe the range of employees being auto enrolled should be broadened by phasing out the qualifying earnings lower limit and earnings trigger, so ultimately all employees are automatically enrolled and all earnings will qualify for pension contributions.
TISA also say that government should make consideration to contribution rates post 2019. With contributions of around 12-15 per cent being regarded as necessary to create a fund capable of providing a sustainable and realistic pension in retirement, a longer-term plan and timetable to reach that will need to be in place.
Research shows that the concept of matching contributions resonates well with employees and increases active participation. This should be considered alongside future increases in conjunction with a tiered contribution structure, allowing members with affordability issues the flexibility to contribute between a percentage range. For example, if we move to matched contributions then an increase to a range of 12 per cent – 15 per cent could result in the employee being able to contribute anything between 6 per cent and 7.5 per cent.
The Pensions and Lifetime Savings Association (PLSA) has also suggested that raising minimum auto enrolment contributions to at least 12 per cent of band earnings is a reasonable medium-term objective. However, they also suggest that people may need to make additional contributions on top of that or work later in order to achieve a desired replacement rate.
The Department for Work and Pensions (DWP) is due to publish the final report on the 2017 review in to automatic enrolment later this year.