TISA, the investments and savings membership association, welcomes the government’s auto-enrolment (AE) review as an important step in allowing the industry to identify ways of building on the success since AE began in October 2012.
There’s plenty of evidence confirming that a high percentage of individuals do not understand pensions or tax relief. They believe engagement with employees will be crucial as the industry completes the staging of small employers and increases minimum contribution rates.
Moving forward, TISA believe Fintech will play an important part in delivering these engagement solutions and the dashboard is an important initiative that will play a significant role. Also, the forthcoming ‘single financial guidance body’ will have an opportunity to engage with employees and offer high quality guidance throughout members’ working lives and into retirement.
Adrian Boulding, retirement director of TISA says, ‘auto-enrolment has been a great success to date. The 2017 review will help the financial services industry to identify ways of building on that success. It is widely acknowledged that contribution levels need to rise, so initially we need to ensure the increases in 2018 and 2019 are implemented as planned.
‘As we go through this period of transition and look to establish an auto-enrolment solution that delivers realistic and relevant outcomes, engagement will be at its heart. This will ensure that we can educate employers and employees, keep opt out rates low and achieve realistic contribution levels.
‘We believe the range of employees being auto enrolled should be broadened by phasing out the qualifying earnings lower limit and earnings trigger, so ultimately all employees are automatically enrolled and all earnings will qualify for pension contributions.’
TISA believes that government should also make consideration to contribution rates post 2019. With contributions of around 12-15 per cent being regarded as necessary to create a fund capable of providing a sustainable and realistic pension in retirement, a longer-term plan and timetable to reach that will need to be in place.
Research shows that the concept of matching contributions resonates well with employees and increases active participation. This should be considered alongside future increases in conjunction with a tiered contribution structure, allowing members with affordability issues the flexibility to contribute between a percentage range.
For example, if we move to matched contributions then an increase to a range of 12 per cent – 15 per cent could result in the employee being able to contribute anything between 6 per cent and 7.5 per cent.
Boulding continues, ‘Another group that should be considered are the self-employed. Nearly five million people are self-employed and only one in ten contribute to a pension. Therefore, it’s vital this is addressed now rather than storing up the problem for further down the line. As inertia has proven successful to date, we need to apply that approach to the self-employed and develop a mechanism to collect contributions.
‘Whilst National Insurance is currently a ‘hot potato’, a method of collection through the tax or National Insurance system is one potential solution. Analysis will then need to be undertaken alongside Master Trust schemes to develop a process of sending the contributions through.’
Boulding adds, ‘One significant element for the self-employed is the absence of an employer contribution. Tax relief on its own will not be enough to motivate individuals, so we must look to deliver some form of incentivisation to achieve similar success levels.
‘In terms of charging, we should be focussing on delivering an approach that allows pension pots to grow into meaningful fund values at retirement. Contribution levels, investment growth and decumulation options are the three most important aspects in achieving this. It will be appropriate to place a focus on charging at a later date when the auto-enrolment proposition matures and is delivering the desired outcomes.’