As a result, the MPs are calling on the government to set out its plans by March 2023 to “build a new consensus on adequate retirement income and what the pensions system should be designed to achieve”.
Start planning for contributions increase
In relation to the 2017 auto-enrolment review, in which the government committed to make policy changes by the mid-2020s, the MPs stated that “it is disappointing that five years on we have seen no implementation plan or impact assessment”.
Currently, auto-enrolment rules dictate that employers must enrol into a pension scheme any staff aged between 22 up to the state pension age, and earning more than £10,000 a year. There is also a £6,240 lower earnings limit, which is the threshold that allows employees to qualify for certain state benefits, including the basic state pension.
In its 2017 auto-enrolment review, the Department for Work and Pensions proposed auto-enrolling workers from the age of 18 and abolishing the low-earnings threshold.
“There is almost universal support for these recommendations, which would improve retirement outcomes for many part-time workers, disproportionately women, and for workers in the gig economy,” the committee said.
Considering that, according to former pensions minister Guy Opperman, there is a bill ready to make these changes, the MPs recommended that “government introduce the necessary legislation no later than the beginning of the next session of parliament”, expected to start in spring 2023.
“It must also publish a timetable for consultation on implementation, taking account of cost pressures on employers and workers,” the report added.
Several pension specialists have called on the government to introduce auto-enrolment reforms, with the Association of British Insurers recently setting a roadmap to increase minimum auto-enrolment contributions to 12 per cent by 2031.
However, the committee considered the current cost of living crisis, noting that now “is not the time to ask people to pay more into their pension”.
“However, if they are to do so in future, work to prepare the ground needs to start now to build consensus on the need for change,” the report stated.
Hence, the MPs are calling on the government to detail if an increase in minimum contributions is possible in the foreseeable future. If not, it “should explain how it intends to address the challenge of many people being on course for retirement incomes” that will not be adequate.
Action needed for self-employed and gig economy workers
On self-employed workers, the committee urged the government to move forward with a plan to increase pension saving in this group, with only 16 per cent of these individuals actively contributing into a pension scheme.
The MPs favoured an auto-enrolment approach for these workers and were “disappointed to hear that HM Treasury has ‘no current plans’” to introduce such a facility through tax assessments.
