New figures from the Department of Work and Pensions show that 10 million workers have now been automatically enrolled into a company pension scheme.
This is seen as a significant milestone for this flagship pension policy, which was first introduced in 2012.
These figures were released as the DWP published details of a new criminal offence for bosses who “recklessly” mis-manage pension funds.
However, while many have welcomed the success of the AE scheme, there are calls for the government to address some “major flaws” in its design.
Former pension minister Ros Altmann says: “It is great to see the auto-enrolment programme continuing its successful path. The behavioural theory behind the policy design is working brilliantly.
“So far, it has extended coverage of workplace pension saving dramatically, ensuring millions of new workers for the first time are paying into a pension scheme with the help of their employer.”
However she points out that there are some significant failings of the policy, which have the potential to undermine its long term success and which need urgent attention.
This includes the fact that many low-earners and part-time workers, earning less than £10,000 a year are not covered by the scheme. This includes many women who work part-time.
She also highlighted the “egregious” problem of the current ‘net pay scandal’ which sees many lower-paid workers missing out on valuable tax relief.
This problem stems from the complexity of pensions administration and HMRC rules.
If employers choose a pension scheme for their staff which administers on a ‘net pay’ system, then all workers earning less than the personal tax allowance (currently £11,850 a year) have to pay the equivalent of the basic-rate tax relief themselves, which means they cannot have the 25 per cent Government bonus that they would receive if their employer used a different type of scheme.
Altmann says this problem could undermine confidence in auto-enrolment. She points out that this issue is hitting increasing numbers of low earners, who are predominantly women. As the minimum contributions are set to double from April this year, the amounts of money these lower earners lose will keep rising.
There have also been calls for The Pensions Regulator to introduce robust requirement to ensure data accuracy. Recent data suggested that up to 50 per cent of the initial filings for small and medium sized businesses are incorrect.
Altmann adds: “Knowing that so many pension errors have already occurred, and bearing in mind that the Pensions Dashboard project is supposed to be introduced later this year, it is clear that an urgent process of data cleansing must be introduced.”
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