Ahead of the DWP review on Automatic Enrolment (AE), leading pensions expert Michael Johnson details 12 specific pension reforms in “Reinforcing Automatic Enrolment”. His recommendations are intended to:
- Give individuals a stronger sense of personal ownership over their savings;
- Ensure that the AE opt-out rate remains low;
- Broaden AE’s eligibility criteria particularly for lower earners and the self-employed;
- Increase the potential retirement income of lower earners;
- Incentivise contribution rates above the statutory minimums;
- Radically simplify the current pensions and savings system;
- Save the Treasury £10 billion a year.
Johnson argues that while Automatic Enrolment in workplace pension schemes has been a success, the Government can do more to encourage saving, especially among the young and the self-employed. This can be achieved by redistributing the current savings incentives, including scrapping all Income Tax relief and NICs rebates replacing them with a 50% bonus paid on the first £2,000 of post-tax contributions (paid by employee or employer), and 25% on the next £6,000 (i.e. an annual bonus cap of £2,500): in total, £10,500 per year, which is more than adequate.