The other coverage issue frequently raised is that of those who earn below the £10,000 automatic enrolment threshold. In my view this is a much less serious problem than the omission of the self-employed. For those who always earn less than £10,000, a flat rate state pension of £8,000 provides a high degree of income-replacement post retirement. For those for whom low earnings is a temporary phase, their serious pension saving will happen when they have higher earnings.
However, when we get to 2019 we will still only be requiring workers and their firms to contribute 8 per cent of a band of ‘qualifying earnings’ into a pension. For the majority of workers, this is well below the level needed for a decent retirement.
We urgently need creative thinking on how to get those contribution rates up without triggering mass opt-outs. For me, the only viable option is to build on the lessons of automatic enrolment by defaulting people into steadily increasing contributions if and when their pay rises.
This ‘save more tomorrow’ approach is proven to work and is the least painful way of getting people to save more. Without this, far too many people will face the invidious choice between working ‘until they drop’ or retiring in relative poverty.
Steve Webb is director of policy at Royal London
Key points
Many of the foundations of a sustainable and effective pensions structure have now been put in place.
The biggest item of unfinished business in pensions policy remains tax relief.
There are no easy answers to getting the self-employed saving more for their retirement.
