National Insurance hit on employers is ‘a major setback’ to hopes of progress on Britain’s undersaving crisis
Pensions & benefits DC pensions Personal finance
Pension improvements risk being stuck ‘in the slow lane’
The hike in employer National Insurance announced in today’s Budget represents a ‘major setback’ to hopes of tackling Britain’s pensions undersaving crisis, according to LCP partner and former Pensions Minister, Steve Webb.
Current rules on automatic enrolment into workplace pensions require employees to make a 5% contribution and firms a 3% contribution, making 8% in total. It is widely accepted that this will not be enough for most workers to build up a reasonable standard of living in retirement. Even the Government’s own estimates suggest that just over half (51%) of all employees or 17.7m people are not saving enough for a ‘moderate’ retirement.
To increase the 8% total contribution rate at a time when household budgets remain under cost of living pressures, it had widely been expected that employers would in due course be asked to contribute more, perhaps levelling up to match employee contributions at 5%. But today’s rise in employer payroll costs makes it highly unlikely that the Government will bring forward any such measure soon.
A more modest expansion of automatic enrolment, contained in review proposals set out in 2017 but not yet implemented, could also be further delayed. Under the proposals, the age range for AE would be expanded to start at age 18 rather than age 22, and the mandatory 8% contribution would start from the first pound of earnings rather than applying only to a band of ‘qualifying’ earnings. These changes would require many employers to pay in more – especially those currently paying only the legal minimum – and the government may find even this modest expansion too difficult in the short-term.
Commenting, Steve Webb, partner at pension consultants LCP, said:
The hike in employer National Insurance is terrible news for hopes of action to tackle Britain’s pension undersaving crisis. Even the Government accepts that millions of people are not saving enough for a decent retirement, and there is no doubt that part of the answer is workers and their employers contributing more. But with employers already having to absorb a big increase in payroll costs, it seems highly unlikely that the Government will try to ‘double dip’ and ask employers to pay more for pensions any time soon. Even the modest improvements to automatic enrolment for which legislation has already been passed are at risk of being stuck in the slow lane. This is a worrying day for anyone who cares about the adequacy of pension saving in the UK.
