This 3 per cent contribution would be analogous to the 3 per cent mandatory employer contribution to which employed earners are entitled. If the self-employed person then topped up this 3 per cent with their own 5 per cent (gross of tax relief) this would give them roughly the same 8 per cent contribution that other workers are already getting.
On the assumption that few self-employed people would want the chancellor to keep their 3 per cent, this rather heavy ‘nudge’ would get the vast majority of them started on the road to pension saving.
Alongside the statement on the terms of the review, the DWP also published the latest analysis of the progress of AE, and this contains some hugely encouraging signs.
Looking at the ‘eligible population’ for AE (workers earning over £10,000 per year, between age 22 and state pension age), it finds that the policy has increased pension scheme membership rates by 37 percentage points in the private sector. This is a huge change in just a few years.
Among the under 30s, the membership rate has soared by 52 percentage points (albeit from an extremely low base), and for those in the lowest quarter of the earnings distribution, the rate has gone up by an amazing 54 percentage points. Any policy that can get large numbers of lower earners and younger people saving into a pension with an employer contribution has to be regarded as a success.
But there is a catch. And this is the key omission from the terms of the 2017 review. The review will not look at what happens after the 8 per cent mandatory contribution rate has been reached in 2019. For the vast majority of workers, even those who start saving at 22 and who draw a full state pension, a contribution rate of 8 per cent is simply not enough to give them the sort of retirement that they want, and therefore they will simply have to keep on working.
Estimates in the Royal London policy paper, entitled The Death of Retirement, suggested that people could be working into their late 70s or beyond to match the sort of retirements enjoyed by previous generations unless something is done about this 8 per cent figure.
Disappointingly, although the government’s announcement said the review would "strengthen the evidence around appropriate future contributions into workplace pensions” it went on to say: “We do not expect to make policy decisions on these areas during 2017”.
I believe that this is a huge mistake. We know that it will have taken 17 years to get from the start of the work of the Pensions Commission (which laid the groundwork for AE) in 2002 to the full rollout of the programme in 2019.
