Proposals Expected To Cost Government £20 Million

Labour’s Shadow Work and Pensions Secretary, Rachel Reeves, has announced that she is considering plans to include more than 1.5 million extra people in auto-enrolment pension schemes.

In a speech to the Resolution Foundation, Ms  Reeves said the proposal to include lower earners in the Government's pensions auto-enrolment scheme would include more than one million lower earning women.

Auto-enrolment will mean that all UK employers must automatically place certain members of their workforce into a qualifying pension arrangement. All employers must contribute to that pension arrangement and must monitor and keep records of their workforce’s membership of the scheme.

The threshold for enrolment is currently £10,000 but Labour’s plans involve lowering this to the National Insurance lower earnings limit of £5,772. Labour estimate that it would cost the Government £20 million by 2018/19 due to extra pension tax relief.

Ms Reeves said: "'The Pensions Commission established by the last Labour government set out a plan to help people save into a workplace pension.

"But the Government left out 1.5 million people from workplace pensions, including more than a million women in poorly paid work when they increased the level of earnings to qualify for auto-enrolment.

"Retirement should be something to look forward to, but for far too many people the insecurity they face during their working life is set to continue when they retire.

"With the rise in zero-hours contracts, part time and low paid jobs and insecure work, an increasing number of people risk missing out on the chance to save for their retirement.

"The government’s failure to encourage more people to save threatens to store up huge costs for taxpayers in the future with a rising benefits bill.'

Work and Pensions Secretary Iain Duncan Smith said: "This is yet another unfunded promise that would mean more spending, more borrowing and more taxes. It would hit businesses with higher costs and more red tape, and ultimately would put jobs at risk. It's the same old Labour.

"We have introduced automatic enrolment to make sure more people save for their retirement - and this year's Budget announced a radical overhaul of the pension system that will transform the way we save and make it easier for people to save for their future.

"As part of our long-term economic plan, we are backing people who work hard and want to build up financial security for themselves and their families. Labour would put this all at risk."

Expert Opinion

The majority of employers will not support this extension and the additional cost in terms of contributions and complexity for administration. I’d also query how flexible some of the current systems would be in coping with this type of change. <br/> <br/>“Although it would be simple to amend existing legislation, there are some issues to bear in mind. Auto enrolment was always intended to provide pensions for low earners, but a quirk of the current coalition is that as tax free threshold has increased rapidly from approximately £6,500 to £10,000 over the last four to five years a large number of employees have fallen out of the AE catchment net . <br/> <br/>“A practical issue at the lower end of the new proposed scale will be affordability. Three per cent by 2018 of £5,500- £6,000 will be a significant payment for those on a low wage, especially if like the last few years the wider environment has seen inflation outstripping earnings increases. I think therefore that this proposal will see a very high opt out rate.” <br/> Nigel Bolton - Partner