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The Actuary The magazine of the Institute & Faculty of Actuaries

Actuaries call for auto-enrolment reform timetable

The UK government must set out a timetable for automatic enrolment (AE) pension reforms over this parliament, the Association of Consulting Actuaries (ACA) has said.

Pension reforms proposed ©iStock
Pension reforms proposed ©iStock

In a report published today, the ACA also called on the government to develop a comprehensive strategy for simplifying defined benefits (DB) so savings are better understood.

Moreover, it urged ministers to begin a “thoughtful and collaborate review” of the pension tax regime, rather than a “knee-jerk reform for a few”.

The recommendations are based on an ACA survey of 308 employers, which found that, on average, businesses support minimum AE contributions of 10% by April 2021.

This would include a minimum employee contribution of 5%, subject to a cap, while larger companies supported total contributions of at least 12% of earnings.

"There is an appetite from employers for a gradual increase in the default level of savings into defined contribution schemes by millions of workers," said ACA chair Jenny Condron.

"Without commitment from government to ensure sums are increased, we see little prospect that we will address fears of a growing gulf in retirement incomes from one generation to the next."

The survey also found that 82% of employers support AE contributions on the first pound of earnings, and that 85% back reducing the minimum eligibility age to 18.

A similar proportion said that the AE contribution increases to 5% of total earnings in April 2018, and to 8% last year, did not impact adversely on scheme participation.

Moreover, the findings show that 55% of employers think DB scheme consolidation is more likely if changes are made to simplify benefits on the way to a consolidation vehicle.

On pension tax reform, three-quarters of the respondents said that the current structure is too complicated and needs simplification.

Two-thirds said that reforms should target more help for lower income groups, even if some other people are worse off as a result.

"Pension taxation reform involving greater simplification, to coin a phrase, cannot be for the few, not the many," Condron said.

"Some important simplifications, facilitated by GMP equalisation and conversion, remains a priority if millions of members are to better understand the very valuable benefits of such schemes and enable employees to address any savings gap to their desired level of retirement income.”

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