That review will scrutinise the impact on lower earners who will see more of their pay diverted to pensions, and the rise in staffing costs for employers.
Credit should be given to Laura Trott, the pensions minister, for getting to within a sniff of the statute book. But these changes to AE are not home and dry.
The changes when they eventually happen should help some people. Lowering the minimum age to 18 will give some four extra years of saving, and we all know that the earlier you start, the better.
An 18-year-old starting to save 8 per cent of their £20,000 salary can expect a fund 13.5 per cent bigger at age 68 than someone who started four years later when their salary was £21,650*.
Removing the lower earnings limit has the bigger effect, however. For the same 18-year-old, this could supercharge their pension fund by 45 per cent. Although plenty of schemes already calculate contributions on this basis – operating a qualifying earnings band is difficult in practice – so there are questions over how many people this will actually help.
I believe there is still more the UK could do to improve pension saving. We should not rest on our laurels. Many believe we should aim for a 12 per cent contribution rate. There are other initiatives to consider.
One is bringing in a ‘save more tomorrow’ programme, where people can pledge on their next pay rise to also increase their pension contribution rate. This forward-looking commitment minimises loss aversion as take-home pay should not, in theory, decrease. This has been discussed for at least the past 15 years, but never initiated on a government level.
Introducing a new personalised guidance regime could make it easier to steer AE workers into increasing contributions, changing investment strategy or making better retirement decisions.
Better pensions engagement will help as well. Pension dashboards were in pole position to make seismic change in the UK, until the brakes were applied earlier this month. One day they should help people take ownership of their pension savings.
AE has been a success in getting most workers saving. But they are not saving enough. The DWP needs to steam ahead and expanding AE should be just the start.
Rachel Vahey is head of policy development at AJ Bell
* Calculations assume earnings and lower qualifying earnings band increase by 2 per cent each year, and that investments increase by 4 per cent net of charges.
