Govt stands by mid-2020s target for AE reforms; rejects call for timetable

The government has said it “remains committed” to implementing the 2017 auto enrolment (AE) reforms in the “mid-2020s”, although it has rejected calls to share a timetable for the implementation of such reforms.

The Work and Pensions Committee (WPC) previously urged the government to consider boosting future saving rates “before it is too late” and to introduce legislation for the 2017 AE Review reforms “no later than the beginning of the next session of parliament”.

While the government's response failed to outline a timetable for consultation, it emphasised that the government "remains committed" to the mid-2020s timeline, aiming to bring forward legislation at “a suitable opportunity and when parliamentary time allows".

"We remain committed to carrying out a consultation on the implementation of the review to ensure this works effectively for all parties," it added.

However, this may come at the cost of further reform, as while the WPC had suggested that the government give consideration to an increase in minimum contributions amid adequacy concerns, the DWP clarified that the 2017 reforms are the current priority.

It stated: "Current statutory contributions of 8 per cent on a band of earnings are unlikely to give all individuals the retirement to which they aspire. That is why, we remain committed to implementing the review measures, as a first step, to improve workplace pension coverage and savings levels.

"Taken together these measures support our policy goal of enabling low to medium earners to save more for their retirement. This remains our priority before looking at further changes."

The government's response also highlighted the potential impact of these reforms on multiple job holders, explaining that removing the lower earnings limit, for instance, is expected to help build financial resilience amongst multiple job holders, young people and lower earners, many of whom will be women.

However, the government seemed to reject the WPC's call to look for other ways to bring multiple jobholders within the scope or auto-enrolment, for example, by amending the PAYE coding notice system to add an instruction to auto enrol.

"DWP have commissioned HMRC for updated analysis using real time Information on multiple jobholders, which will enable us to consider the scale of the challenge and determine next steps," it stated.

"If someone has more than one employer, you can’t ask one employer to aggregate earnings and enrol them – not least as the individual may not want one employer to be aware of the other; recognising that relying on an opt-in system alone may not be sufficient, we will look at targeted engagement to support this group."

The government also disagreed with the committee's thinking in a number of other areas, such as the call for a new consensus on what an adequate income is in retirement, as the Department for Work and Pensions (DWP) argued that a collection of measures, based on different methodology, provides a greater range of insight, than a single measure alone.

In addition to this, while the WPC had raised specific concerns around adequacy in relation to Generation X, the government response suggested that it is not the right time to consult on this issue, instead highlighting other efforts to support savers.

It stated: “We do not believe now is the right time to consult and we have taken steps to address this challenge, including introducing the new state pension, providing further information and guidance to savers and considering how to consolidate small pots to the benefit of savers.

“We are committed to demonstrating the benefits of working for longer, to move to a more partial retirement or more flexible working arrangements as a starting point for some savers.

"As well as information on opportunities for voluntary saving above AE minima, we are continuing to explore how easy it is for people to save above the minimum rates and whether processes are understood by savers and are frictionless."

In addition to this, the DWP confirmed that it is considering how to address the challenge that small pots present, so that pots can be consolidated to provide better value for money, and be more easily accessible, for savers.

Despite recommendations from the WPC, the government's response confirmed that there are currently no plans to introduce automatic deductions into a pension through Making Tax Digital, instead highlighting the role of prompts and nudges to encourage self-employed pension saving, as demonstrated by recent trials with Nest Insight.

“To that end, we advocate further work on how best to incentivise long-term saving for self-employed people; and on how best to integrate the benefits of such mechanisms into default solutions based around touchpoints that reach most self-employed people, such as the tax system,” it stated.

However, HM Treasury also confirmed that HMRC is not actively considering automatically enrolling the self-employed via the NICs system, explaining that these systems are not designed to collect or administer pension contributions, which would present a "significant challenge".

Gig economy workers were another area of concern highlighted by WPC’s initial inquiry, with the government confirming that it is continuing to work with The Pensions Regulator (TPR) and the Department for Business, Energy, and Industrial Strategy (BEIS) on addressing this “complex issue”.

It stated: “It is our view that many ‘gig’ economy workers are already eligible for AE, including fixed term contract, zero hours and agency workers. TPR is responsible for maximising employer compliance and monitors developments with the gig economy, taking action where appropriate to ensure businesses meet their AE obligations.

"BEIS continues to explore further options to collect more timely and robust data on labour market trends and the gig economy, including through collaboration with the ONS.

“We believe that the definition of jobholder in the AE legislation is clear and that there is no need to alter that definition at the present time. We are seeing that gig economy workers who meet the definition of a jobholder are already being brought within the scope of AE through the compliance work carried out by TPR and the government’s efforts to clarify guidance on employment status.

However, it acknowledged that collective defined contribution (CDC) schemes could have the potential to help address this challenge, stating that there is "strong appetite" to broaden CDC provision beyond the single or connected employer regime.

"We, therefore, aim to consult soon on potential policy proposals to accommodate well designed and well-run multi-employer and master-trust CDC schemes to operate either on a sectoral basis or wider," it confirmed.

The response also revealed that work is already underway to agree a definition of the gender pension gap, with the government working to develop a "coherent framework for understanding the scale and challenge of the gender pension gap".

It stated: "The government will continue to collaborate to find a suitable definition of the gender pension gap, which enables the development of a metric for measuring progress on reducing the gap.

"This will not only allow us to monitor and drive the progress made under AE beyond equalising participation rates but will also provide the evidence base for a suitable policy response to tackle the issue."

The WPC had also outlined recommendations for the Money and Pensions Service (Maps), including explaining the role it expects its pensions guidance services to play in meeting its goal to have 5 million more people understanding enough to plan for and in later life by 2030.

In light of this, Maps has provided a separate response to the committee to address these recommendations.

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