Summary
Pensions automatic enrolment (AE) has so far been a tremendous success. An additional 6.1 million people are enrolled in a workplace pension and saving for their retirement, with many more to follow. Employer compliance rates are high and employee opt-out rates are low. It is essential that this success is not undermined.
Gaps in pension regulation have allowed potentially unstable master trusts onto the market. Should one of these trusts collapse, there is a very real danger that ordinary scheme members would lose their retirement savings. There is also a risk that wider faith in auto-enrolment will be undermined. The Pensions Minister told us that she wants a Pensions Bill for stronger regulation of master trusts. We support this.
The introduction of the Lifetime ISA, potentially seen as a competitor product, could jeopardise the success of AE. The Treasury and the Department for Work and Pensions appear to have different views over whether it is a pension product or not. Some young people may opt-out of AE in order to save in a LISA, leaving themselves worse off in retirement. Furthermore, the LISA is due to be introduced at a time when the majority of small businesses will still be to move on to AE and statutory contribution rates will be yet to rise. The Government should make it clear that the LISA is not a pension. It should also conduct urgent research on any effect of the LISA on AE and report on this before the 2016 Autumn Statement.
The period of moving 1.8 million small and micro-employers on to AE will be the most challenging phase of the programme. The DWP and The Pensions Regulator have taken positive steps to support these businesses, including a targeted communications campaign. This campaign should now focus on the financial consequences of non-compliance, emphasising that AE cannot be ignored. DWP should provide reassurance to small and micro-employers about where liability will fall if their chosen pension scheme performs badly or fails. It should also work with HMRC to expand Basic PAYE Tools to support small businesses in meeting their AE obligations. It must be as easy as possible for small businesses to participate without additional cost.
Once implementation is completed, approximately 9 million people will be newly saving, or saving more, in a pension due to AE. The 2017 review of AE would be an ideal opportunity for the Department to consider how to build on this success. The review should consider how to increase contributions beyond the statutory minimum of 8% and how to bring more low-paid and self-employed people into AE.
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Prepared 13 May 2016