Another nudge needed

Big day tomorrow. Budget Day is usually when pension geeks cower behind the sofa ready for some new tax onslaught on pensions. But, instead, this year we are hearing encouraging noises that the Treasury might increase the trivial commutation limit up to a (quite honestly) startling £15,000. That would help thousands of people avoid having to buy an expensive and tiny annuity.

In other news, Friends Life reported they had staged 274 schemes for automatic enrolment. But it also reports a ‘significant’ number of employers are only paying 1% employer contribution.

Automatic enrolment is being heralded as a roaring success. Already more than two million new AE pension scheme holders have started saving for retirement. And the 9% opt out rate is eye-wateringly good. But there are challenges ahead – with the so-called ‘twin peaks’ of employers enrolling this summer, and talk of provider capacity crunches.

But I wonder what percentage of employers are only paying the bare minimum in contributions. I haven’t seen any stats on this from the DWP or the tPR. But I’m willing to bet it’s a high percentage. Automatic enrolment is great as a ‘get-them-starting-saving’ vehicle, but we all know that size matters. And the more people save, the better their retirement. Increasing contributions is so much more important in the big scheme, than, say, fiddling around with charges.

So, wouldn’t it be great if the Treasury came up with some money in this year’s Budget to encourage employers to pay more than the minimum 1% into their pensions? Some sort of tax break to reward good employers.

Great. But, I suspect, very unlikely.