Opperman: 12mn people are under-saving for retirement

The revelation surfaced in a letter to Work and Pensions Committee chair Stephen Timms, whose committee is carrying out an inquiry into “saving for later life”, which is examining pensions adequacy, including specific focus on the gender pensions gap and gig economy workers.

Timms had asked the pensions minister, in a letter dated July 20 2022, to provide an estimate for retirement under-saving. Opperman was also asked whether he thought the resulting level was acceptable and, if not, to what level he would like to see this reduced.

The select committee chair also asked Opperman whether he had considered using a power in the Pensions Act 2008 to clarify the definition of a worker for the purpose of automatic enrolment, after the Pensions Regulator’s chief executive, Charles Counsell, said in July that the legal position of workers was unclear.

HMRC is not actively considering automatically enrolling the self-employed via the NICs system

Richard Fuller, Conservative MP

The minister was also asked to provide an estimate of the gender pensions gap, along with his plans for the routine collection and publication of this data.

The inquiry received responses from employers and schemes, as well as Richard Fuller, the economic secretary to the Treasury.

Recognising the role of personal responsibility

The government remains under pressure from the pensions industry to implement the recommendations of its 2017 auto-enrolment review, which include lowering the minimum age for enrolment from 22 to 18. Opperman has directed that the auto-enrolment reforms should be achievable by 2025.

The minister’s estimate for pensions under-saving was based on modelling used for the 2017 auto-enrolment review. “Without the introduction of AE, an additional 2mn individuals — a total of 14mn individuals — were estimated to be under-saving,” he claimed.

Opperman added that many savers will “be close to their target pension income”. For example, of the 1.6mn under-savers in the two lower earnings bands, just over half are within 20 per cent of their target pension income, as defined by their target replacement rate.

He said that the introduction of auto-enrolment was estimated to reduce the proportion of young under-savers from around 48 per cent to 36 per cent, and the proportion of under-savers in the lowest pre-retirement earnings bands to 11 per cent. 

“This is significant progress, and we continue to explore ways of supporting provision and contributions to reduce under-saving, in addition to the 2017 review ambitions that we have committed to implement in the mid-2020s, and building on the pension reforms recognition of the role of personal responsibility to save on top of that minimum rate,” he continued.

HMRC systems ‘are not designed to collect pension contributions’

Pensions adequacy for the self-employed remains a source of concern, and in July TPR told the Work and Pensions Committee that it was working to provide gig economy workers with access to pensions.

Uber told the inquiry in its own response that it has around 97,000 drivers enrolled into a scheme launched in September 2021. It cited flexibility as an attraction for driving for Uber and pointed to a Public First report, which found that drivers would choose to retain their flexibility over receiving 50 per cent higher earnings.

It called for its competitors to work together on developing an “industry-wide joint pension pot”, which would allow drivers who work across multiple platforms to combine their earnings and reach the minimum auto-enrolment threshold of £10,000.

“To achieve this, we would need firms from across our sector to step up and work together, spurred on by legislative and regulatory changes if necessary,” Uber said.

Section 98 of the Pensions Act 2008 enables the government to extend the definition of a worker. Opperman, however, told Timms that this definition does not currently need amending. 

“We believe the definition of a jobholder in AE legislation is clear, and that there is no need to alter that definition at the present time through use of the powers in Section 98,” Opperman said.

Also responding to the select committee chair, Fuller wrote on August 31 that the government “is committed to exploring how to support self-employed individuals further to save into a pension”.

Fuller pointed to current trials run in conjunction with the Money and Pensions Service which signposted self-employed workers not paying into a pension or annuity towards free guidance, along with other workers towards testing “technology-based nudges” and the value of flexible savings mechanisms.

However, he rejected the idea of raising Class 4 national insurance contributions as a substitute for employer contributions for the self-employed. The idea has had backing from Counsell, as well as the All-Party Parliamentary Group on Financial Resilience.

“The government is committed to keeping taxes low to support working people to keep more of what they earn and to encourage individuals to progress, ensuring work always pays,” Fuller said.

“HMRC is not actively considering automatically enrolling the self-employed via the NICs system,” he continued. 

“HMRC systems are not designed to collect or administer pension contributions — it would present a significant challenge as new ones would be required. 

“This would prove to be difficult at a time where the government is already delivering major projects to modernise the administration of tax and pension savings.”

AE has helped reduce the gender pensions gap

In response to Timms’ queries on the gender pension gap, Opperman claimed that auto-enrolment had helped to reduce the gap.

“In 2010 to 2012, the median female pension pot was 38 per cent smaller than the median male pot, and this had reduced to 25 per cent in 2018 to 2020,” he wrote.

The minister noted that a pension wealth gap of around 25 per cent, or £5,800, between males (£22,900) and females (£17,100) for workers aged 16 to state pension age, for those contributing to a pension.

“Our commitments to reduce the eligible age for enrolment from age 22 to 18 and to remove the lower earnings limit will disproportionately benefit lower earners and low paid part time workers, who are predominantly women,” he said. 

“This will help more women save more while they are working to build their resilience for later life.”

The government publishes data annually through its ‘Workplace participation and savings trends’ report, Opperman added.

Data protection rules pose problem for USS

The inquiry has received responses from employers, including Tesco, as well as pension schemes such as the Universities Superannuation Scheme.

Tesco used its response to highlight the apparent popularity of meetings between its employees aged 50 and above and PensionWise.

“The feedback from these meetings has been overwhelmingly positive and take-up has been high,” it said, adding that 7,000 employees attended meetings from the initiative’s launch in 2018 to spring 2020.

The USS, meanwhile, noted the challenges it is facing over its compliance with the requirements of privacy and electronic communications rules, “specifically in relation to the current soft opt-in requirements”, as well as adhering to TPR’s guidance on communicating with members.

Current data protection rules limit the scheme’s ability to communicate via electronic means, the USS said.

“Despite concerted effort to engage our active members, only 9 per cent have opted-in to receiving additional support material which currently falls into the marketing category,” it said.

“This equates to just over 17,500 members, meaning the majority of our active members are not appropriately engaged with educational content designed to help them understand their pension and make sound financial decisions.”

The scheme called for a policy statement to accompany any changes in the regulations or guidance concerning how members receive information, and appealed for TPR and the Information Commissioner’s Office to be better aligned.

“Any extension to the soft opt-in rules should go beyond the suggested extension to just ‘non-commercial organisations’ to include ‘not-for-profit corporate trustees’,” the USS added.