TISA launches proprosals to overhaul Auto-Enrolment as part of ‘Getting Retirement Right’
22 September 2020
The Investing and Saving Alliance (TISA) has published four additional proposals in relation to changes to Auto-Enrolment (AE), which would see individuals earning below £17,500 being given the option to opt out from their own AE contribution, whilst still receiving their employer’s contribution.
It is hoped that this would help those that are financially insecure, and the proposals have been made in conjunction with some of the major pension and investment firms. TISA is running a ‘Getting Retirement Right’ scheme, which aims to ensure that everybody has the opportunity to plan, prepare and ultimately, enjoy their pensions and retirement. The main proposal would mean that those who are less financially secure are less likely to have to deal with escalating debt levels or forfeiting household essentials in order to remain in a workplace pension, but that employers would still be required to contribute.
Extensive research in this area highlights the fact that those who are lower earners struggle to pay their personal contributions, but do not opt out, indicating that these individuals rely on increasing levels of personal debt instead. The Department for Work and Pensions (DWP) defines ‘low pay’ as 60% of national median earnings. Figures from the Office for National Statistics (ONS) show that the median household disposable income for the tax year ending 2019 was £29,400, and 60% of this is £17,500. This is the basis for the figure under which individuals would be able to opt out of personal pension contributions, but still receive the employer’s element. This threshold would be reviewed on a yearly basis.
At present, AE contributions amount to 8% of qualified earnings, 5% of which comes from the employee and 3% that is contributed by the employer. In February 2020, an initial research paper was published, which found that, for a median earning household, a contribution level of 12% of whole salary would be required in order for families to achieve a moderate retirement, when added to full state pensions. Newer proposals recommend that the 12% should be shared equally between employee and employer, and phased in over a six-year period, at a rate of 0.5% per year, starting in 2023.
In line with the Net Pay Action Group, in relation to the net pay anomaly, an issue which affects the lowest earners, TISA is recommending that the issue is resolved by HMRC at the end of the tax year using Real Time Information (RTI) data. This would mean that any of those individuals who are impacted will receive a bonus to the amount of the tax relief they would have received had they been in a relief at source scheme.
The Head of Retirement at TISA, Renny Biggins, said:
“We are pleased to present phase two of the campaign which sets out our proposals to progress AE and ensure that everybody has the opportunity to save for their futures. AE has been a bigger success than anyone could have imagined but, nearly 10 years on from its inception, changes need to be made to ensure it continues to develop and serve hard working people in the UK.
Research has shown that opt out levels have remained consistently low, lower than predicted, which is excellent news but may also have a detrimental impact on the lowest earners. This could result in levels of debt reaching unsustainable levels, yet it is also vital people are saving for their futures.
We hope to continue working closely with the Government to realise these proposals, most notably to protect the lowest earners and to ensure contributions reach the necessary 12% of pensionable salary for the majority, which will allow people and households to retire on a moderate income as set by the PLSA Retirement Standards.”
The full set of proposals laid out in Phase Two of ‘Getting Retirement Right’ are as follows:
- The 12% level of contribution proposed in the ‘Getting Retirement Right’ research should be split equally between the employer and employee
- To recognise the financial impact on employers and employees, the increases should be phased in over a period of six years at a rate of 0.5% per year, and should commence the year after the proposed mid-2020 proposals have been fully implemented (which were proposed by 2022 in part 1) – 2023 and complete in 2028
- To introduce an additional personal contribution ‘opt out’ option linked to earnings, to recognise that flexibility is needed with the AE framework to cater for lower earners
- Resolve the Net Pay Anomaly through an HMRC reconciliation process using RTI data
The CIPP’s Policy and research team is currently running a survey, which looks at possible solutions to the net pay anomaly, which have been proposed by the government. We will be submitting a full, formal response to the call for evidence that the Treasury has published and want to incorporate the views of payroll professionals, some of which will be gleaned from the survey. We will also be hosting a think tank roundtable, so any full, fellow and chartered members should keep their eyes peeled for an invite, which will be sent shortly. Ahead of this, expressions of interest should be sent to Policy@cipp.org.uk.
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