16.05.16
Auto-enrolment pension success at risk due to regulatory weaknesses
Members of automatic enrolment pensions schemes could find their savings in jeopardy because of the risk of pensions funds collapsing and competition from the new lifetime ISA, according to the Work and Pensions Committee.
The committee’s latest report says that automatic enrolment, introduced by the Pensions Act 2008, has been a ‘tremendous success’, with 6.1 million people enrolling as of March 2016, with only around 10% of eligible workers opting out.
However, it warns that the pensions regulator is not doing enough to scrutinise master trusts (occupational pension schemes for multiple employers), meaning that pension funds could be lost if a master trust collapsed. It said that the Department for Work and Pensions (DWP) needed to clarify the role of employers, who could be liable for investment decisions.
Frank Field MP, chair of the committee, said: “Auto-enrolment has been a tremendous success that will ultimately see approximately 9 million people newly saving, or saving more, in a pension. Crucially now we must do much more to ensure that people’s savings are put in the best possible place, and are secure.”
Unison has also launched a petition against changes to local government pension schemes, warning that they could mean funds would have to invest in government infrastructure projects regardless of members’ interests.
The report also warned that the new lifetime ISAs, announced in the March Budget, could derail the success of auto-enrolment if savers start using them instead of pensions. They are unlikely to be a good alternative to automatic enrolment because they do not attract employer contributions.
Councils say public sector auto-enrolment is too complicated
In its evidence submission to the inquiry, the LGA said that the current system of automatic enrolment and re-enrolment provisions for statutory public service pensions’ schemes is more complicated than it needs to be.
It proposed that the process should be simplified by allowing public service pension schemes to automatically enrol all new employees, giving them the chance to opt out if they chose to, and automatically re-enrol them every three years.
It also said that the government had missed an opportunity to make public sector pensions more sustainable and affordable by not allowing public service pension schemes to amend their schemes to offset the loss of the National Insurance rebate, which took place in April 2016.
The Work and Pensions Committee also criticised the DWP for introducing a software programme called Basic Assessment Tool to support auto-enrolment among employers, instead of the more reliable and trusted HMRC Basic PAYE Tools.
New Pensions Bill needed
The committee also called for the government to introduce a Pensions Bill to strengthen regulation of master trusts, and new promotional campaigns to remind small and medium-sized employers (SMEs) to register their employees for auto-enrolment and to raise awareness of the difference between auto-enrolment and lifetime ISAs.
It also wants the government to improve the existing automatic enrolment scheme by expanding HMRC Basic PAYE Tools, lowering the minimum threshold to include more lower-paid people, particularly women, and increasing contributions beyond the statutory minimum of 8%.
It also said that automatic enrolment should be expanded to self-employed workers, and a single pensions dashboard should be created for employees with multiple small pensions pots.
2.30pm UPDATE
A DWP spokesperson said: “We welcome the committee’s recognition that Automatic Enrolment has been a tremendous success and is enabling millions of people, many for the first time, to save for their retirement through workplace pensions. We will consider the recommendations within the committee’s report and will respond in due course.”
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