Govt should abolish AE earnings trigger – TUC

The government should abolish the £10,000 auto-enrolment earnings trigger, Trades Union Congress head of economic and social policy Kate Bell has said.

Ahead of the auto-enrolment review, which is due this month, Bell highlighted that employers should be able to enrol their staff into a workplace pension after the first pound of earnings.

This would significantly help to tackle the savings gap and get more people engaged with and contributing into a pension earlier, Bell noted.

Speaking at the Pensions and Lifetime Savings Association’s Trustee Conference, Bell emphasised the current unpredictability of pensions as a savings vehicle.

Bell discussed pensions as a pension lottery comprising of three components: the employment lottery, the investment lottery and the retirement lottery.

With the pensions employment lottery, Bell explained that “where you work has an impact as to whether you are saving or not”. Pensions depend on whether individuals are auto-enrolled, their earnings and their employer. The agriculture sector was found to be the workforce where auto-enrolment rates are the lowest, with a total of 65 per cent of workers not auto-enrolled.

Furthermore, Bell explained that the pensions investment lottery is the time in which members choose to draw their pension. According to research from regulatory bodies, when individuals choose to access their pension has a huge on their average income. Just years apart income can be significantly altered depending on the investment market at the time. As a result, the “amount members get in retirement…. can be out of members’ control,” Bell said.

The final sector, the retirement lottery, Bell stated is that at the point of retirement pension income can be impacted by compounding and returns. Members “can’t control when good returns are going to be achieved” and therefore, this can “affect how long the pot will last,” she added.

In order to tackle this, Bell listed the TUC’s key proposals including: scrapping the “complicated qualifying earnings system”, reducing the starting age for contributions and setting out a route map for raised contributions.

“Trade unions have long supported the stance that pension contributions should be at least 15 per cent of salary, including 10 per cent from the employer and five per cent from the wage packet of an employee,” Bell said.

In addition, Bell detailed that the TUC would like to see the continuation of open defined benefit schemes, greater cost transparency, greater consolidation of schemes, the introduction of CDC schemes to collectivise investment risk and retirement default pathways.

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