Inertia is a powerful force. The law of Spiderman’s Uncle Ben applies: “With great power, comes great responsibility”. When it comes to auto-enrolment (AE), we need to ensure it delivers good outcomes to the right demographics and does not create unintended detriment for individuals and households.

We cannot let our auto-enrolment policy be dominated by inertia, and recent proposals to review the auto-enrolment earnings threshold and potentially eliminate it, risk creating adverse outcomes despite positive intentions.

The earnings trigger is there for a reason. It precludes those earning below the threshold from automatic enrolment, as there is a greater likelihood that earnings should be prioritised elsewhere.

If we consider some recent headline statistics for UK households, they make for stark reading:

• Poverty rates* among those who live in working households have steadily increased over the last 25 years from 13 per cent to 17 per cent. The size of this group meant that in 2019/20 the majority of those living in poverty were in households which had some form of paid work.

The rise in working poverty has happened while the UK has enjoyed record levels of employment. Prior to the pandemic, the employment rate reached 76.6 per cent, the joint highest on record.

• The Covid-19 pandemic has had, in particular, a profound impact on the finances on part-time and lower paid workers where a much higher rate of poverty already existed.

For many in this category, earnings need to be focused on meeting everyday household expenditure and, where possible, trying to pay down any personal debt accrued, such as personal loans, overdrafts and credit cards. For some, however, this will not be possible and debt needs to be relied on or increased.

Looking at the economic landscape, we have the introduction of the Social Care levy in 2022/23, inflation is rising steeply and energy costs are also likely to rise significantly from April 2022.

The increasing ‘cost of living crisis’ has to be considered when we consider changes to AE and in particular, the earnings trigger. The interaction of state benefits and personal wealth is another area which needs careful consideration and review.

In a perfect world, we should not be in a situation where saving for your retirement could have a detrimental impact on outcomes. Personal saving, where possible, should always be considered a fundamental principle – one of your “five a day”.

However, the reality is that, for some low-paid households, a small amount of savings wealth could remove the entitlement to an even higher level of state benefits. It is an incredibly complicated policy area, given the various benefits and permutations of entitlements that exist, compounded by future uncertainty and a risky macroeconomic environment.

If we could reach a position where lower-income and those affected by in-work poverty were not disproportionately penalised for retirement saving, that would be a positive step forward.

But there is a loophole we need to address. The recent fall in unemployment figures was largely attributed to part-timers and many of these may be multiple job holders earning collectively over the current £10,000 earnings trigger.

This group should be enrolled within their respective employments, but the current pensions system does not currently cater for this scenario.

While challenging to resolve, the answer may lay with HMRC, as they hold the collective earnings data for all individuals and could identify if total earnings from all employment exceed the AE earnings trigger.

The proposals which stemmed from the 2017 AE review should be implemented no later than the mid- 2020s, however. Indeed, two of Tisa’s published AE proposals relate to having these placed into legislation no later than 2022 and implemented no later than 2025.

There will never be a perfect time to implement these changes, as they do increase contribution levels, notably for lower paid employees where the existing lower earnings limit forms a larger percentage of their overall salary. The lead time is needed to give employees and employers time to prepare.

There is also a general industry consensus that minimum contribution levels need to increase, as existing levels will not enable individuals and households to achieve good retirement outcomes in isolation.

At Tisa, we have proposed an increase to 12 per cent of total salary, based on incremental increases over six years, to arrive at a 6 per cent employer and employee total contribution no later than 2032.

While even this significant change will not even achieve good retirement outcomes for a proportion of households, we believe this strikes the right balance between inertia and engagement.

We have also proposed that, from 2025, increased flexibility is introduced in the form of a personal contribution ‘opt out’ option linked to earnings, to help those who are financially struggling.

It is right that the earnings trigger is reviewed on an annual basis. But there are many factors that need to be taken into consideration – both present and future.

It cannot be based solely on the additional retirement fund an individual would receive. We cannot let our long-term pensions policy be dominated by short-term inertia.



* The poverty line for a young couple with children in 2018/19 was £347 per week after housing costs.

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