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Millions of low earners could be safely auto-enrolled in pensions

Almost 3 million low earners could afford to be auto enrolled in pensions due to mitigating circumstances, according to a new study by the Pensions and Lifetime Savings Association (PLSA).

Under the current system, workers need to earn more than £10,000 for auto-enrolment on their employer’s pension scheme.

The PLSA has identified groups who are low earners, but had other factors that would make saving for retirement affordable, for example people on a low income who live with a partner or spouse who earns more.

The research indicates that removing or lowering the £10,000 threshold for these groups could improve retirement outcomes by 7%-13% for nearly 3 million people.

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Nigel Peaple, director of policy and advocacy at the PLSA, said pension savings can squeeze some low earners’ immediate living standards.

However, by not participating in the scheme, low earners miss out on tax relief and on the employer contribution of 3% which would help in later life.

Speaking to HR magazine, he said: “The £10,000 earnings threshold for automatic enrolment was employed to protect workers on the lowest earnings from saving for the future when they might be better off having more money in their pockets today.

“However, the existence of the threshold does result in certain groups, notably women and carers, having lower pensions than average.

“We wanted to understand the make-up of this under-researched group and explore whether policy interventions could safely improve their retirement outcomes without hurting their standard of living in the here and now.”

People with multiple low-earning jobs often miss out on auto-enrolment too, said Steven Cameron, pensions director at pension firm Aegon, though they could be earning above the low earnings limit.

Speaking to HR magazine, he said: “If someone has three employments, each paying say £9,000, then they will not be auto-enrolled into any scheme. If they earned the same total of £27,000 but in a single job, they would be receiving valuable employer contributions. 

“We’d be keen to see this group prioritised as part of future enhancements to auto-enrolment.”

After removing those groups deemed at a lower risk, an estimated 300,000 people could not afford to be automatically enrolled.

The PLSA said this group needed to be considered too when modifying the threshold.

Suggestions included keeping the £10,000 trigger for some low earners, creating other savings options and providing family or carer top-ups through the welfare regime.

The PLSA also suggested an ‘opt-down’ option, where employees pay a reduced amount into their pension, rather than opting out of pension saving completely.

Cameron said considerations must balance low earners’ current circumstances and retirement prospects.

He added: “We agree the starting point must be to avoid creating undue hardship for these low earners while working – it’s hard to justify auto pension contributions if the resulting private pension combined with the state pension could actually leave them better off in retirement than while working.”