How would you change workplace pensions?

Did you know that the government has a scheme to put employees into workplace pensions?

You may have already been put into one.

If so, you’ll be in the company of more than six million other workers who have also been enrolled in the scheme. And with two-thirds of all employees now active members of a workplace pension – compared to under half when auto-enrolment began in 2012¹ – the government could declare that the scheme is an unqualified success. They may even think it’s on the path to defuse the pensions timebomb.

Is that really the case?

Workplace pensions in the spotlight

Auto-enrolment has given millions of people a pension for the first time in their life – and that’s going to improve the standard of living for many when they leave the workforce. By 2018, it’s estimated that 9 million workers will be new savers or saving more as a result of the scheme.

Successes like these give the government a lot to be proud of. Of the employers who have so far been required to put their staff into pensions, 95% have done so.

And we often hear big numbers about auto-enrolment, such as by 2019/20 there will be an extra £14-16 billion saved into pensions each year.

What we don’t hear so much of is that, of the 40 million people aged between 16 and 64 in the UK, only around half actually qualify².

And with low earnings being one of the main reasons workers are not eligible, it is the people most in need of help who are excluded, including part-time workers and, in particular, women³.

We’ve written before on the challenges facing women in retirement. As a quick recap:

  • Almost two-thirds of the people earning £7 or under per hour are women
  • Women do the majority of unpaid care
  • Three-quarters of part-time workers are women
  • More than half of women have never had a personal pension

Recent figures also show that about a third of working women earn less than the minimum earnings threshold to qualify for auto-enrolment.

To give some context to that, there are 20,000 people earning less than £5,824 from two jobs, and every one of them is female.

And while just 16% of male employees don’t qualify for auto-enrolment, that figure is doubled for women⁴.

This is largely because of criteria to qualify: you need to earn £10,000 from a single job. The peculiar outcome of this is you could have one job with a salary of £10,000 and be enrolled into a workplace pension, yet if you have two jobs each paying you £7,000, you would have a higher income but be excluded from auto-enrolment.

One possible option would be the government changing this threshold so that a person qualifies once their total earnings hit or exceed £10,000. This would immediately mean an extra 80,000 people become eligible. Of those, 60,000 would be women.⁵ Such a change would also include thousands of ethnic minority workers, carers and workers with disabilities – immediately benefitting many people who most need the help.

Of course, if you earn less than £10,000 but more than £5,824, you can still ask your employer to include you, or you can open your own private pension. But that puts the responsibility back onto the individual and undermines the purpose of auto-enrolment.

What would you do?

The big question now is, where do we go from here?

One option, as mentioned, is to allow a person to be eligible once their total earnings reach £10,000.

The earnings threshold could also be lowered to include more people, although it’s likely many would choose to opt out if they felt they didn’t earn enough to contribute.

Does there need to be extra support and encouragement for the groups most likely to be excluded from workplace pensions?

Do high paying industries need to be more appealing to them?

Or do we need to acknowledge this is the reality and find another solution?

Have your say, what more could be done to include the people most at risk of poverty in retirement?

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