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01 Feb 2017

Survey exposes weakness in workplace pensions savings schemes

A new study has exposed significant weaknesses in the government´s pension auto-enrolment policy, which could affect millions of employees, Business Matter reports.

According to the survey, conducted by the Association of Consulting Actuaries (ACA), around 12 million private sector employees are at risk of falling outside the auto-enrolment (AE) bracket by mid-2018.

That´s because the earnings trigger - the point at which employees are eligible for AE - is currently too high, and the scheme itself does not cover the rapidly growing self-employed population.

The publication notes that AE has been successful to date, adding more than seven million employees onto workplace pension initiatives. However, with ONS estimates suggesting that around 40% of staff at ‘micro employers´ - those with fewer than five employees - earn less than £10,000 per annum, many are ineligible for workplace pensions.

Furthermore, employee opt-outs have risen to over 21% of eligible individuals in smaller companies.

Commenting on the report, ACA chairman Bob Scott said it “underscores that in smaller firms the problem is heightened, with those joining AE generally at or near the minimum levels of total contributions, which amount to less than 2 per cent of earnings at present.”

Scott highlights a number of recommendations made in the report, which the ACA hopes the Government will consider in its 2017 AE review.

These include being honest with the public about how the State pension is unlikely to provide a decent income “for the majority of people”, and increasing their efforts to “convince the public of the essential need to save more for their later years.”

Employers also need to do more, Scott urges, to ensure that private sector employees are financially prepared for their future.

Copyright M2 Bespoke 2017

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