The pensions minister Laura Trott has announced that the government will be making significant changes to the national auto enrolment pension advice scheme. These changes will be implemented via a private Members Bill in Parliament.
The Bill will see two important changes:
- A lowering of the auto enrolment pension advice age to 18 from its current level of 22.
- Secondly to apply the 8% contribution to total salaries, rather than only applying over minimum thresholds. Which is what happens today.
These changes were first proposed back in 2017 and are certainly needed.
According to the latest research from the Department of Work and Pensions almost 40% of people are under saving for pensions. The research found that:
- 5 million people are under saving. This is calculated on costs required to retire comfortably after taking into account housing costs. The figures are based on the retirement income that would be provided by an annuity.
- This increases to over 14 million people if you deduct 25% tax free lump sum before calculating the annuity value.
- Surprisingly, the highest earners were those under saving the most.
- Auto enrolment has helped to improve the situation though, with 11 million people now auto enrolled.
- This will increase substantially when the proposed changes come into force.
But at the moment there is no date set for its implementation.
Some commentators were hoping the minimum auto enrolment pension advice contribution rates would also increase from 8% to 12%. But that is not currently part of the proposals.
The government also announced an extension to the National Insurance Top Up scheme. This was put in place to allow savers to top up any gaps in their National Insurance contributions going back to April 2006.
The deadline was set at 5th April but has been extended until 31st July.
Making sure National Insurance contributions are fully paid up means that savers will be able to claim the maximum state pension allowance on retirement. Those with gaps in contributions may not receive the maximum state pension available.