Ahead of the Department of Work and Pensions review of automatic enrolment, a new report by the Centre for Policy Studies (CPS) has outlined 12 specific pension reforms.
Reinforcing Automatic Enrolment, recommends giving people a stronger sense of personal ownership over their savings; ensuring that the opt-out rate remains low; broadening eligibility criteria - particularly for lower earners and the self-employed; increasing the potential retirement income of lower earners; incentivising contribution rates above the statutory minimums; radically simplifying the current pensions and savings system; and saving the Treasury £10billion per year.
The report, written by CPS pensions expert Michael Johnson, says that while auto-enrolment in workplace pension schemes has been a success, the government can do more to encourage saving, especially among young people and the self-employed.
The report says this can be achieved by scrapping all Income Tax relief and NIC rebates and replacing them with a 50% bonus paid on the first £2,000 of post-tax contributions (paid by employee or employer) and 25% on the next £6,000 (i.e. annual bonus cap of £2,500).
Graham Peacock, managing director at Salvus Master Trust, said that although of the ideas in the report are interesting, it's possible they could undermine the overall success of auto-enrolment.
He said: "With £38.2bn spent on pension tax relief in 2015/16, tax payers deserve a measurable improvement in retirement outcomes - particularly those most at risk of a bleak retirement.
"Johnson's proposals appear to be centred on the cost to the Treasury - rather than helping any group in particular.
"Some of the proposals are welcome in theory, for example, that barriers to saving such as the £10k tax threshold are removed," he added, "however, this needs to come as part of a wider package of tax reform, particularly around net pay arrangements, which unfairly favour high earners.
Lydia Fearn, head of DC at Redington agreed: "The suggestion that auto-enrolment contributions for under 50s should be eligible to be paid into a workplace LISA simply adds another layer of complexity to what is fast becoming a confusing space.
"As an industry, we need to continue to provide simple and easy ways for members to save for their futures and we need to think about incentivising lower earners and self-employed people to make sure they have a reasonable amount of savings to help them in later life."
First published 21.07.2017
Lindsay.sharman@wilmingtonplc.com
