TUC: Delays in pension reforms may hurt lower-paid workers

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06 Feb, 2019

TUC: Delays in pension reforms may hurt lower-paid workers

According to an analysis by the UK’s trade union federation, low-paid workers will not be subject to tens of thousands of pounds in retirement, due to delays in pension reforms, the Financial Times reports.

In 2017, the British government announced plans to design measures to support the pension funds of lower-paid employees, particularly women working multiple part-time jobs who would consequently retire with less money in their pocket than men would. 

One of the measures proposed by the government would entail pension contributions for workers automatically enlisted into a workplace pension scheme to be calculated from the first pound earned, instead of from a lower earnings limit which currently stands at £6,032, or £116 per week. 

In order to be registered automatically in a workplace retirement scheme, employees must earn a minimum of £10,000 per year. The Lower Earnings Limit (LEL) denotes that the first £6,032 of this figure is ignored when an employer works out contributions to an employee’s pension fund. This number is due to surge to £6,136 as of April, meaning a smaller amount of a lower earner’s pay check attracts pension contributions. 

The government announced an “ambition” in 2017 to get rid of the LEL in “the mid-2020s” in order to aid lower-paid workers in building “resilience” for retirement. 

According to unions however, postponing the introduction of the reform by six years would mean that workers with annual earnings of £10,00 would be deprived £12,000 from their total pension fund, including both missed contributions and investment growth on funds.

The Trades Union Congress (TUC) conducted research based on the LEL being discarded in 2028 rather than 2022, the earliest dates fitting with the “mid-2020s” vow. 

The TUC, a body of unions representing 5 million workers, has petitioned the government to ditch the LEL “as soon as possible.”

Deputy general secretary of the TUC Paul Nowak said: “Our message to the government is very simple – stop dithering, deliver on your pension promises and ensure every pound earned by every worker counts towards their pension.”

Roughly 10 million workers have been enrolled into a workplace retirement scheme since 2012, when new regulations compelled employers to automatically sign up entitled employees into a company scheme and contribute to it on their behalf. Currently, the minimum combined contributions from both employer and employee are 5% of the pensionable salary. This figure is set to increase to 8% as of April.  

Over 9 million employees however, have passed up the auto-enrolment as they do not meet the requirements for age and earnings. The government has also declared that aside from doing away with the LEL, it will broaden the auto-enrolment eligibility criteria by lowering the age from 22 to 18. 

“Automatic enrolment has been a great success with almost 10m people enrolled, transforming lives up and down the country,” said the Department for Work and Pensions. 

“Our ambition is to ensure that everyone can save from their first pound earned by removing the lower earnings limit. However, we need to tread carefully, balancing our intention to bring more workers into pension saving with ensuring they can afford it. We will watch closely the impact of increasing contribution rates this April.”