Articles - Need for change in AE rules to end 'covert discrimination'

The pension pots of low paid workers, part time workers and carers, the majority of whom are women, could more than double with minor changes to the auto enrolment legislation according to a new Pensions Policy Institute report commissioned by workplace pension provider NOW: Pensions. The report analyses the impact of removing the £10,000 auto enrolment trigger and eradicating the qualifying earnings calculation from the auto enrolment calculation.

 • 3.3 million individuals would become eligible for auto enrolment if the earnings trigger was removed
 • Calculations for auto enrolment minimum contributions discriminate against low paid and part time workers - 81% of part time workers are women
 • Removing “qualifying earnings” from the auto enrolment calculation could increase the pension pots of part time workers by 140%
 • If contributions were made on every pound of earnings the pension pot of a full time worker could increase by 87%
  Auto enrolment minimum contributions stipulate that the first £5,824 of an employee’s earnings does not count for the purposes of auto enrolment and anything above £43,000 isn’t included either.
 The report highlights that removing the trigger and basing contributions on every pound of earnings could improve outcomes for all workers by thousands of pounds and would be particularly advantageous for women.
 Over three quarters (77%) of employees earning less than the auto enrolment trigger are women. Over 50% of part-time workers earn less than the auto enrolment trigger and 81% of part-time workers are women.
 PPI’s modelling reveals:
 • A full time worker earning the national living wage and making auto enrolment minimum contributions can expect a pension pot of £33,100 at retirement. But, if contributions were made on every pound of earnings their pot would increase by 87% and total £62,200.
 • For somebody who takes a break to look after children from aged 26 to 32, works part time until 54 and then goes back to work full time, the uplift is greater. If contributions were made on every pound of salary then their pension pot would increase from £11,400 to £21,400 – an 86% increase. However, this would increase even further to £33,200 if the auto enrolment trigger were removed, a 190% increase on the current situation.
 • For those with two part time jobs removing qualifying earnings would increase their pension pot by 140% from £20,800 to £49,700. Remove the earnings trigger and their pension pot would be boosted by up to 200%. Currently part-time workers miss out twice as a result of the qualifying earnings calculation. 4.4 million part-time workers earning less than £10,000 are women.
 • While removing qualifying earnings would most benefit lower paid workers, it would improve outcomes for all. A median earner who works full time from aged 22 to retirement would see their pension pot increase 31% going from £92,300 to £121,400.
 • The impact on a high earner is also marked, with the pot increasing from £172,500 to £244,200, a 42% increase.
 Commenting on the findings Adrian Boulding Director of Policy at NOW: Pensions said: “One of the key findings of the recent Cridland Review was that while the new State Pension will deliver equally for both men and women, it’s occupational pensions that are leading to men enjoying higher total pension income than women. As it stands, auto enrolment is doing nothing to redress this balance.
 “To end this covert sexual discrimination, government need to act now removing qualifying earnings from the auto enrolment calculation and revisiting the appropriateness of the trigger when it undertakes its review of auto enrolment in 2017.”
 Frances O’Grady, General Secretary of the Trades Union Congress (TUC) said: “Automatic enrolment has been a great policy success. It has ensured that millions of people have pensions with employer contributions for the first time.
 “But millions more, the vast majority of them women and part-time workers, remain excluded.
 “The government’s review of automatic enrolment due next year needs to ensure that all workers have the opportunity to build savings for retirement.”
 In supplementary research* NOW: Pensions conducted with auto enrolled savers it was revealed nearly two thirds (63%) are unaware that minimum contributions only apply to qualifying earnings. Almost half (46%) of UK workers who have been auto enrolled into a workplace pension say they are contributing the minimum and, when made aware of the qualifying earnings calculation, more than half (57%) say they would prefer their pension contributions to be paid on every pound of their salary to increase the amount that goes into their pension pot.
 Boulding continues: “Savers are completely in the dark over the impact of qualifying earnings. There’s a widespread assumption that an 8% contribution means an 8% contribution on every pound of what you earn, but in most cases this simply isn’t true. For those earning £10,000 a year their effective contribution rate is actually just 3.3%. Even for those at the top of the band earning £43,000 – the effective contribution rate is still only 6.9%.”

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