Pensions Change Penalises Women

The earnings threshold for auto-enrolment is now being raised to £10,000, resulting in another 170,000 people being excluded 120,000 of whom are women 

Emma Wall 17 December, 2013 | 3:46PM
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The Government has denied tens of thousands of women the right to extra income in retirement. 

A paper released today, entitled Review of Auto-enrolment Earnings Trigger reveals that the earnings threshold for auto-enrolment is now being raised to £10,000, resulting in another 170,000 people being excluded 120,000 of who are women. Women typically earn less than men as they are more likely to work part-time or flexible hours.

These lower-earning employees have to therefore take charge of their retirement planning and opt-in to their pension scheme, rather than being automatically included. If these employees request to join the pension scheme, their employer is obliged to also contribute - but there are concerns that many lower-earners will be unaware of this stipulation.

Worse still, for those employees earning less than the £5,500 lower threshold companies have no obligation to provide them with a pension - meaning these savers are guaranteed to have a lower quality of retirement. These employees can opt to save into their company pension - but their company will not make contributions.

Tom McPhail, head of pensions research "There is an increasing risk that failure could yet be snatched from the jaws of success. Millions of workers are being excluded from the enrolment process and many of those who are being put into a pension won’t be saving enough."

McPhail urged companies to communicate effectively with all employees and to engage them in planning for retirement.

"The Government is increasingly in danger of making the same mistake as the previous government did on stakeholder pensions in 2001, by assuming that low cost is a guarantee of a successful outcome," he added. "You can have all the price caps and defined ambition ideas you like but if you don’t get people to spend less and save more it will all be a waste of time."

The paper comes just a day after it was announced by the Pensions Regulator that two million people have now been auto-enrolled into a pension scheme. While this is extremely positive, the Regulator also revealed that three million workers have not been enrolled into workplace pensions, as they have failed to qualify. 

Auto-enrolment was launched last October starting with the country's largest companies and around 10 million people will eventually be enrolled into schemes over the next couple of years.

In July this year it was reported that one million workers had been enrolled, but 1.7 million had failed to qualify because they earn less than the minimum threshold, are too young - or are older than the state pension age.

More than 3,600 companies have introduced auto-enrolment since October 2012, and a further 4,000 are expected to roll out the scheme over the next two months. Critics of auto-enrolment say that this influx of employees will test the pension system - calling it a "capacity crunch". 

Hargreaves' Laith Khalaf said that 2014 had the potential to plunge the auto-enrolment programme into "mayhem".

"Employers have the difficult task of complying with the regulations, at a time when there will be unprecedented demand for the services of pension providers and advisers. Throw into the mix the fact that the government is still pondering the final rules, including a price cap, and 2014 has the potential to plunge the auto-enrolment programme into mayhem," he warned.

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Emma Wall  is former Senior International Editor for Morningstar