An automatic enrolment friendly budget
By Dale Critchley — Policy Manager, Workplace Benefits at Aviva
Philip Hammond’s budget delivered little change to the treatment of UK pensions but at the same time went a long way in helping facilitate the continued success of the most successful change in recent years, automatic enrolment.
In a range of measures aimed at helping low paid workers (including changes to Universal Credit, a 4.3% increase in the National Living Wage and a £650 increase in the personal allowance) the Chancellor ensured effective insulation of the lowest paid against the impact of April’s minimum pension contribution increases.
For those earning a bit more, the unexpected early introduction of a £12,500 personal allowance will deliver an increase in take home pay of up to £130 a year. When combined with modest pay rises in the first quarter of 2019 this may well be enough to offset the 2% increase in employee pension contributions due in April.
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Avoiding a reduction in take home pay came out as a key success factor in Aviva’s survey of attitudes to automatic enrolment this year. 21.1% of people said they would see how the increases impacted their pay before making a decision on whether to stay in their scheme, a figure that rose to 31.1% of 22 to 34 year olds.
While we cannot be complacent, a similar insulation of take home pay against contribution increases in April 2018 resulted in only a marginal uptick in people opting out. A repetition next year will mean close on 10 million savers have a foundation of pension saving which they can build on for their future.
The combination of automatic enrolment and today’s job market makes it harder for people to keep track of their pensions so the government’s commitment to a £5 million spend in 2019/20 to help deliver pension dashboards, and a promise that the long awaited DWP consultation on their detailed design will be delivered later this year is welcome.
We will need to wait and see the detail of the DWP’s proposals but the fact that Treasury are talking about Pension Dashboards as plural, rather than a single Dashboard is interesting. Multiple Dashboards linked to a pension finder service is something Aviva has supported from the outset as the best way of driving innovation and traffic to the sites.
The growth in defined contribution (DC) pension assets, driven by automatic enrolment, was also recognised in the budget. With DC assets predicted to top £1 trillion by 2025 the government is looking at how these funds can be used to provide finance for innovative, high-growth firms through patient capital investment.
Alongside environmental, social and governance considerations, DC trustees and pension providers may wish to invest in patient capital to benefit the wider economy, provide employment and stimulate long-term economic growth, to diversify risk or to deliver potential long-term growth. It’s just another example of how pension schemes can deliver for members and help society at the same time. The patient capital initiative is something Aviva is supporting.
The budget was tagged as a budget for “strivers and grafters” but it’s also a budget that recognises the importance of automatic enrolment to the wider economy as well as to individuals.
