This is particularly true of employers with relatively young populations of workers such as those in the retail and food industries.
The removal of the lower earnings limit also raises important questions. While for many removal of the limit will be entirely affordable and make for more adequate incomes in later life, we also need to consider the impact on the wider financial wellbeing of lower earners.
Removing the lower earnings limit would, of course, see someone earning £12,000 almost double their pension contributions.
These additional contributions will attract additional employer contributions and tax relief, meaning that for a relatively small cost to the individual, the benefit to their income in retirement could be considerable.
Nonetheless, given the income replacement provided by the state pension, those contributions could, for some, be better spent on day-to-day expenses.
That is why we are looking forward to discussions over the autumn about how the expansion of AE might also include measures that protect low earners from saving more for retirement than might be ideal given competing financial challenges.
Research by the Institute for Fiscal Studies in 2020 told us that the lowest earners are among those least likely to opt-out of pension saving.
Inertia is clearly doing powerful work amongst this cohort, which gives us an even greater responsibility to ensure defaults are acting in their best interests.
Measures like differential contributions based on income band or the ability to 'opt down not out' by reducing pension saving need to be fully explored. We know that short-term financial vulnerability and debt are serious issues for many auto-enrolled savers.
Nest Insight is trialling a ‘sidecar’ savings model – a hybrid savings product that combines a liquid ‘emergency’ savings account with a traditional defined contribution pension.
This uses the idea of ‘set and forget’ to create a persistent flow of contributions to pension savings as well as giving people access to some emergency savings to help build short-term resilience and safeguard against problem debt while protecting long-term retirement savings.
Mechanisms like this could help provide a ‘safety valve’ if, as default contribution rates rise, those additional savings are initially kept liquid.
This could serve many savers well by enabling them to contribute more to their retirement savings over time, but also to build up a financial buffer, and, in some cases, protect them from saving more than may be in their broader financial interests.
In doing so, such a change could even open the door to increasing overall contributions further, faster and for all than might otherwise be possible.
The next few months should be a fascinating time for all those involved in pensions and long-term savings.
