Committee report calls for consensus on retirement adequacy and reforms to auto-enrolment

The Work and Pensions Committee published its final report on protecting pension savers on 30 September 2022, the third part of an inquiry into who is not saving enough for an adequate income in retirement¹. The committee said automatic enrolment, introduced in 2012, had raised the proportion of eligible workers saving in a pension from 44% in 2012 to 86% in 2020, with only around one in ten opting out¹.

The report cited analysis by the Pensions Policy Institute for B&CE showing that only 39% of households and 37% of individuals are on track to hit the target replacement rates used by the Pensions Commission to benchmark adequacy¹. It said there is no consensus on a single definition of adequacy, and called on the Government to set out its plans for building one by March 2023¹.

On contribution rates, the committee said many witnesses told it that minimum rates needed to rise above 8%, made up of 3% employer and 5% employee including tax relief¹. It welcomed the former Pensions Minister's aspiration to work towards a 12% minimum rate, as in Australia, and said there are good arguments for starting with an increase in employer contributions to 5%, level with employees¹. It added that the middle of a cost of living crisis is not the time to ask people to pay more into their pension¹.

The report said pension saving among the self-employed has declined since the mid-1990s and is now at 16%, compared with 88% of workers eligible for auto-enrolment¹. It recommended HM Treasury and the Department for Work and Pensions set a date to trial ways to default self-employed people into pension saving, and consult on increasing the main rate of Class 4 National Insurance paid by the self-employed by 3%, with the option of paying the increase into a pension where the self-employed person also contributes 5% including tax relief¹. It noted DWP aimed to work with software developers and HMRC after Making Tax Digital, scheduled for April 2024, but that HM Treasury had "no current plans" to introduce an automatic enrolment facility as part of that delivery¹.

On the gig economy, the committee said many workers miss out on pension rights because companies class them as self-employed, and repeated its recommendation that the Government bring forward its Employment Bill as soon as possible¹. It said the Department for Business, Energy and Industrial Strategy issued new guidance on employment status in July 2022¹.

The report also recommended a review of the £10,000 earnings trigger for auto-enrolment, and said the gender pension gap is "mainly caused by inequality in the labour market, including differences in working patterns and earnings"¹.

Why it matters for households

The report concerns people saving through workplace pensions and those outside automatic enrolment, including the self-employed and gig economy workers. Minimum contributions are currently 8% of qualifying earnings under the auto-enrolment minimum contribution rates; the committee's proposals would raise employer contributions to 5% and, in future, the overall minimum towards 12%, but no change has been legislated and the report itself says now is not the time to ask for more¹. Self-employed people, 16% of whom save into a pension, would be affected by any default mechanism or Class 4 National Insurance change, neither of which has been introduced¹. The £10,000 earnings trigger determines who is enrolled, and a review could change who is covered¹. The report also covers pensions dashboards only indirectly, through its call for more guidance and awareness of MoneyHelper Pensions¹.

What happens next

The Government has two months to respond to the report¹. The committee asked for plans on retirement adequacy by March 2023, legislation on the 2017 auto-enrolment review no later than the beginning of the next parliamentary session, and a timetable for consultation on implementation¹. It recommended a new office to build an evidence base and report regularly to Parliament on progress, including on retirement adequacy and the gender pension gap¹.