DWP backing of AE extension measures a 'landmark day' for pensions

Industry backs government support but says reforms must now be implemented at pace

Jonathan Stapleton
clock • 4 min read
Aegon head of pensions Kate Smith welcomed the announcement but urged the government to implement these reforms at pace

Aegon head of pensions Kate Smith welcomed the announcement but urged the government to implement these reforms at pace

The Department for Work and Pensions’ (DWP) decision to back proposals to expand auto-enrolment (AE) marks a ‘landmark day’ and is ‘fantastic news’ for pensions, the industry says.

On Friday (3 March) the government backed the private members' bill put forward by MP Jonathan Gullis - a bill which looks to grant two extensions to AE - abolishing the lower earnings limit for contributions and reducing the age for being automatically enrolled to 18.

This bill - the Pensions (Extension of Automatic Enrolment) (No. 2) Bill - was originally introduced at the end of last month and received its second reading last week.

Lane Clark and Peacock (LCP) partner Steve Webb - the former pensions minister who has previously chided the government on the slow pace of its AE reform - celebrated the move.

He said that, while the Bill will have to complete its remaining stages in the House of Commons and will also need to be approved by the House of Lords, this was now "unlikely to be a problem with government support".

He said: "This is truly a landmark day for UK pensions. With pensions policy having been stuck since the 2017 review there was a real risk that the gains from AE would be stalled. Now that the government is backing the necessary legislation the way is cleared for younger workers to be brought in and for lower earners in particular to build up pensions more quickly.  The new minister, Laura Trott, deserves huge credit for her role in unlocking this logjam".

Aegon head of pensions Kate Smith also welcomed the announcement as "fantastic news" but urged the government to implement these reforms at pace.

She said: "It's fantastic news that the government has confirmed its support for enhancements to auto-enrolment, originally put forward back in 2017. The next step is to agree a timetable for implementing these enhancements. With the next General Election to take place not later than January 2025, we urge the government to start phasing this in from April 2024."

Smith said basing contributions from the first pound of earnings rather than on a band above £6,240 would mean contributions from both individuals and employers increase - noting that employees could see a contribution boost of around £500 a year extra.

But she said, to avoid an overnight change, it would be important to introduce this gradually over a number of years to avoid someone earning £12,480 seeing their contributions double overnight.

Positive impact

Scottish Widows head of pension policy Pete Glancy said the government's move would have a significant impact on the pension pots of lower earners and younger workers.

He said: "Reducing the threshold age of automatic enrolment to 18 will increase average pension pots by up to 15% for younger workers and removing the lower earnings limit will increase the pension pots for those lower paid workers by up to 150%. This is exactly the type of decisive government action which is needed right now."

Legal & General Investment Management co-head of defined contribution Stuart Murphy agreed the expansion of AE criteria would have a huge impact - addressing the "real concern" that too many people had been slipping through the net.

He said: "It gives young people and those on lower incomes the opportunity to save as much as they can, as early as they can, to boost their long-term retirement prospects. On top of that, it's a small step towards addressing systemic challenges such as the gender pensions gap."

Aviva managing director for wealth and advice Michele Golunska agreed - saying this was a "step in the right direction" for pensions policy.

She said: "This is great result for young pension savers, who will benefit from getting on the pension ladder earlier and those all-important employer contributions. It is also good news for the lowest earners and those working multiple jobs who would benefit from getting pension contributions from the first pound they earn.

"This is a step in the right direction, and we look forward to working with government to bring in these reforms."

Association of British Insurers director of policy, long-term savings, health and protection Yvonne Braun also agreed. She said: "AE has transformed workplace pension savings in this country but the challenge remains to ensure that it captures as many people as possible and that they are saving enough for their retirement.

"Removing the Lower Earnings Limit and reducing the lower age limit helps to achieve this and reflects some of the recommendations in our recent report, Automatic Enrolment: What Will The Next Decade Bring?. The success of this policy over the last 10 years is down to consensus between government, political parties, industry and employers, and we stand ready to work with Jonathan Gullis MP and all other partners to build on this over the next decade."

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