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Government must improve auto-enrolment rules so that every pay packet includes a decent pension contribution, says TUC

New data published today by the Office for National Statistics reveals that 542,527 employees in the South West – 23% of the regional employee workforce – are not receiving employer contributions to a workplace pension.

Auto-enrolment into workplace pensions has been in place since October 2012. It has helped increase the proportion of employees with workplace pensions from 47% in 2012 to 77% in 2019.

However, millions of workers are still excluded because employers do not have to automatically enrol staff earning less than £10,000 a year or under the age of 22.

The rules also exclude the first £6,136 of pay when calculating the minimum pension contribution based on wages earned.

The combined effect means that low-paid workers miss out on up to £300 of annual pension contributions from their employer.

Part-time and women workers losing out

Part-time workers are at particular risk of missing out. Just 58% of part-time employees nationally belong to a workplace pension, compared to 86% for full-time workers. This means women are disproportionately affected, as they are three times more likely than men to be in part-time work.

The TUC says that workers generally need total contributions of at least 15% of their wage to be sure of a decent income in retirement.

The union body is calling on the government to remove the earnings limits, and to raise the minimum contribution required from employers.

TUC Regional Secretary in the South West Nigel Costley said:

“Automatic enrolment has helped many more working people get pension contributions from their employer.

“But the current rules exclude lots of low-paid and young workers. Because parts of the region are a low-wage economy, it’s no wonder so many people in the South West still don’t have a workplace pension.

“It’s time the government ended this injustice – no more excuses. Pension schemes are a vital part of earnings. There should be a pension contribution in every pay packet.”

- Rule changes the TUC is calling for:

  • Remove the £10,000 trigger: so that all low-paid and part-time workers can be auto-enrolled, and the gender gap in pensions provision can be reduced.
  • Remove the £6,136 lower earnings limit: so that all the hours a person works can count towards their pension.
  • Reduce age qualification to 18 years old: so that millions more young workers can be auto-enrolled to a workplace pension.
  • Higher minimum contributions: the government should set out a roadmap of staged increases to minimum contributions to reach a total of 15% of wages, with at least 10% coming from the employer.
Editors note

- Workplace pension rules: All employers must offer a workplace pension scheme and automatically enrol workers in it if their annual earnings are at least £10,000 and they are 22 years old or above.

Workers who earn between £6,136 and £10,000 can still opt in. But if a worker is on less than £6,136 annually, the employer can refuse them entry onto the scheme or refuse to make contributions.

The scheme currently requires minimum contributions relative to wages of 3% from the employer and 5% from the employee – a combined minimum of 8%.

But this 8% is calculated on ‘band earnings’ - between £6,136 and £50,000 – meaning contributions for many workers are significantly lower than 8%.

- Workers missing out on ‘up to £300’: This is based the amount that a worker on just below £10,000 would receive in annual pension contributions from their employer if there was no lower earnings limited and they were automatically enrolled. Those on lower earnings would receive lower contributions, commensurate with the 3% minimum rate.

- ONS pensions data: Today’s release of pensions data from the Office for National Statistics can be found here

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