The IEA comment on the proposal
to lower the earnings threshold for automatic enrolment in a workplace
pension
Commenting on the
proposal to lower the earnings threshold for automatic enrolment in a workplace
pension, expected to be announced in a speech tomorrow by Rachel Reeves MP,
Prof Philip Booth, Editorial and Programme Director at the Institute of
Economic Affairs, said:
“Extending auto-enrolment
down the earnings scale will nudge people into joining pension arrangements who
can ill afford to do so. Many such people will move to full-time employment
later in life and, at that stage, it will become appropriate for them to start
to save for their retirement.
“The proposals will also
load yet more costs onto employer – both administrative costs and costs
of the employer matching contribution. Politicians should be making it easier
– not more difficult – for employers to take on more
staff.
“The effect of these
proposals will be to exacerbate cost of living pressures by putting downward
pressure on take-home pay.”
Notes to
Editors:
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Detailed response to
Rachel Reeves’ statements:
“Under David Cameron
millions of working families facing a cost-of-living crisis are finding it
harder and harder to save for their retirement.”
Response: T
his proposal does not give employees more money to save for their retirement
except by loading more costs onto businesses. It simply involves enrolling
people in pension schemes regardless of the suitability of the scheme for their
needs.
“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.”
Response: W
hilst the fall in pension saving, partially – if not largely –
caused by the last government over-regulating defined-benefit pension schemes,
increasing taxation of pension funds by £5bn a year (in 1997 prices) and
eroding rebates for contracting out of state pensions is regrettable, this
statement is simply not true. The proposed flat-rate state pension will take
the vast majority of people out of the means-testing net in retirement. The
Labour Party should be aware of this as they are supporting its
introduction.
“We are considering
detailed proposals which could ensure the 1.5 million workers excluded from
workplace pensions, are able to save for their
retirement.”
Response: I
t is simply not true that such people are not able to save for their
retirement. They can save through ISAs or personal
pensions.
The mission of the Institute of
Economic Affairs is to improve understanding of the fundamental institutions of
a free society by analysing and expounding the role of markets in solving
economic and social problems.

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