Nobody is thinking about pension auto-enrolment reform at the moment. Quite frankly, people are more concerned about how they are going to afford to put the heating on this winter, or how they are going to pay their mortgage. Understandably, of course. However, this should not be used as an excuse by those in power to continue pushing auto-enrolment reform to the back of the agenda.
The current auto-enrolment regime is too constricted. It needs to apply to more people. There is a bill currently in the House of Commons that aims to extend auto-enrolment to include 18 years and above employees and reduce the qualifying earnings threshold, which is earnings on which pension contributions are paid.
Although this is a step in the right direction it does not go far enough. Minimum contributions also need to be examined, as does the £10,000 minimum earnings threshold. The current minimum contributions are not enough, especially when comparing the minimum 3% of salary employers must contribute to the equivalent employer contributions for those with defined benefit (DB) pensions, such as those received by employees in the public sector.
With the state pension age increasing, many employees with defined contribution (DC) only pension arrangements may find that they are having to work longer than planned because the amount in their DC pension pots is not enough.
It is no secret that DC pensions are less generous than their DB counterpart. Although life expectancy has decreased slightly in the last couple of years, individuals with DC only arrangements may struggle with relatively small pension pots that are meant to last them for more than 20 years.
Some may say that at a time where people are struggling to pay day-to-day expenses, they need the money right now rather than contributing part of their salary towards their pension.
Auto-enrolment does not force people to save for their retirement, it is a choice. Employees deserve to be allowed to make that choice and receive what are essentially free employer contributions to their pension. Expanding auto-enrolment gives more employees that option.
Rhiannon Barnsley is an associate at Arc Pensions Law
