There are fears the government's new saving scheme could interfere with auto-enrolment. Kim Kaveh asks if we should be worried.
At the end of last year, the government confirmed that automatic enrolment (AE) has brought nine million people into a workplace pension since its introduction in 2012.
Alongside the surge in members saving into a pension by default, the government has separately introduced optional saving mechanisms for workers.
Just as there were fears this time last year that the Lifetime ISA (LISA) would increase opt-outs from AE, now another savings scheme due to launch soon has also sparked concern.
It is important to note that, according to the government's AE review, the AE opt-out rate rests at 9%, but this is expected to rise to around 22% from April 2018 to March 2019, and approximately 27% from then on, based on 'conservative assumptions'.
In a speech on life chances on 11 January 2016, then prime minister David Cameron set out the government's intention to bring forward a new Help to Save scheme to encourage people on lower incomes to build up a 'rainy-day fund'.
The scheme will target working families on the lowest incomes to help build up their savings by providing incentives, which can also help them to save for retirement.
Its trial officially started this month and will roll out in stages. It will be available to all those eligible from October 2018, instead of the originally-planned April start.
According to HM Revenue & Customs (HMRC), over four years regular savers can deposit up to £50 a month and could receive up to £1,200 in tax-free bonuses under the initiative.
The scheme is open to working people who receive working tax credits, and those who receive universal credit with a household income or individual income of at least £542.88 in their last monthly assessment period before their application.
In December, Aegon warned Help to Save could lead to a rise in AE opt-outs, PP previously reported.
The firm's head of pensions Kate Smith said: "There could be a variety of low earners taking it up, and for them every single penny counts. It could bite with AE if it's taken up by lots of people, and we don't know if members have excess money to pay this."
While this could well be a possibility, it is far too soon to tell if the initiative will have an effect on AE.
Pensions and Lifetime Savings Association defined contribution (DC) policy lead Tim Gosling echoes this, and points out the government and industry do not "fully understand the thought process that people go through with AE yet," and "more evidence is needed".
He adds: "We know AE is effective when it comes to raising pension coverage rates, but we don't know what will happen when people have another choice."
Nonetheless, he concludes the most likely outcome will be that the 'default effect' will prove more powerful than anything else.
"You would have to give a very strong incentive to lead people away from AE. Partly because I don't think members sit down with their pocket books and figure out which option is the best - that's not actually how people pick financial products."
Some industry experts are almost certain that it will not make a dent in AE, including Royal London director of policy Sir Steve Webb, who agrees with Gosling that default effects are sufficiently more powerful.
"These schemes never work. It definitely wouldn't cause an AE opt-out surge as the take-up of these things is so poor."
Similar predictions about the LISA, which came into force in April 2017, do not appear to come true to any meaningful extent as of yet.
Back in October 2016, Labour called for a delay in the LISA until 2018 in a stark warning about the potential consequences of AE, saying savers would choose between a workplace pension and LISA, which could lead to more opt-outs.
Gosling says: "If you're self-employed the LISA is a no-brainer. If, on the other hand, you're in scope for universal credit then it's a pretty terrible idea, and I can completely see why that hasn't taken off with some people."
However, it is still early days given the LISA is not even a year old yet.
Webb adds if we start to see firms wanting to offer LISA in the workplace, it could still pose a threat to pensions.
"If firms want to offer a pensions package, and an ISA package which includes the LISA, that could have an impact, but the Help to Save alone would not."
One potential initiative that would be more likely to cause an increase in AE opt-outs could be a LISA and Help to Save 'hybrid scheme', according to Hargreaves Lansdown head of policy Tom McPhail.
He explains how this would work: "You could merge the Help to Save and the LISA schemes so that you just had a LISA, which has similar incentives provided to lower-paid earners that Help to Save provides."
There is no evidence to suggest the government's Help to Save initiative would not be a popular take up for lower-income earners, and would spark more AE opt-outs due to its attractive incentives.
However, its take-up is unlikely to be very popular. For one, the default option is just too powerful, and the LISA, which is available to a broader spectrum of people has not yet affected AE. It is therefore questionable that the Help to Save initiative - which is available to an even smaller pool of people - could cause a surge in opt-outs.
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