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Plans to expand pensions auto-enrolment are a welcome first step

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The government has backed legislation to expand savings into workplace pension schemes.

The private members bill will give ministers powers to lower the age at which employers must put workers into a scheme from 22 to 18.

It also paves the way to abolish the ‘lower earnings limit’ that lets companies make no pension contributions on the first £6,240 of a worker’s income.

This is a positive move from new pensions minister Laura Trott.

It will result in more workers saving into a pension, and will increase the amount being built up for retirement for many.

These are long-awaited enhancements to the automatic enrolment regime introduced by Labour in 2008 that requires eligible workers to actively opt out of saving into a scheme and forces employers to make minimum contributions.

But these are only the first steps towards filling in the gaps in our pension system.

According to the government impact assessment the measures will put an extra £2bn into workplace pensions – an increase of less than 2 per cent on the amount going in each year at the moment.

This is around half what was forecast when these proposals were first made in 2017 – potentially as a result of more young people staying in full time education, and a rise in part-time work meaning fewer people are earning above the £10,000 threshold at which employers have to auto-enrol them.

And the largest component of this extra retirement saving is member contributions which, as workers struggle with the longest and deepest pay squeeze for two centuries, will be difficult for many on low incomes to bear.

Boosting retirement saving rates will require more substantial measures – like removing the £10,000 threshold that excludes many part-time workers and people with multiple jobs, and increasing minimum employer contributions from the current paltry level of 3 per cent of pay.

The priority is to actually put in place the regulations to reduce the age threshold and remove the lower earnings limit (something the government has been promising for more than five years) as soon as possible.

This should be followed by a timetable to raise employer contributions to help more workers save the 15 per cent of pay needed to fund a decent retirement, and to phase out the earnings threshold so everyone can benefit from these employer contributions.

And any progress in building up retirement savings must not be undermined by actions to devalue our state pension – the foundation on which our pension system is based.

The UK is already an international outlier, with a low state pension and relatively high – but unevenly spread – levels of private and workplace pension wealth.

This leads to more inequality and poverty in old age than in neighbouring countries as retirement incomes are more directly linked to people’s ability to save while in work.

If, as reported, the government plans to accelerate increases to the state pension age at the same time as bringing more people into auto-enrolment this balance will be skewed further and inequalities in retirement are likely to widen.

So while this announcement is welcome, to give everyone the chance of a decent retirement the government will have to go further while resisting the urge to chip away at the state pension.

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