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Pensions may not be the answer, but women need to save
A change to the thresholds for automatic enrolment into workplace pensions could leave women out of pocket at retirement.
by Michelle McGagh on Sep 13, 2012 at 10:37
Government tweaking of the rules on pension auto-enrolment could see women miss out on the benefits of saving for retirement.
Auto-enrolment starts in October, when UK employees who are not currently saving into a workplace pension will be placed into one automatically. Although it is not compulsory to save for a pension and workers can opt out if they choose, the government is hoping to boost the number of people saving for old age.
Not everyone will be auto-enrolled, however, just those employees earning a salary within certain thresholds.
The thresholds originally proposed were linked to the national insurance contribution limits, meaning anyone earning under £8,105 a year or over £42,475 would not be auto enrolled in the 2012/13 tax year.
However, the Department for Work and Pensions (DWP) has proposed changing these thresholds to break the link. In a consultation it said it wants to keep the upper earnings threshold at £42,475 or increase it to £42,971 for 2013/14 – this is despite the upper earnings limit for national insurance falling to £41,450. This freeze on the threshold would mean 40% higher-rate taxpayers would be captured by auto-enrolment.
However, there will be a bigger impact at the bottom end of the earnings scale. The DWP wants to increase the lower threshold from £8,105 to £9,205 to link it with the PAYE thresholds.
This increase at the bottom would exclude 340,000 individuals from the auto-enrolment schemes, 75% of whom are women.
Is a pension best for low earners?
However, Ros Altmann, director general of over-50s service provider Saga, said excluding lower-earning men and women from auto-enrolment may be the right decision.
‘The problem is that if they do not align auto-enrolment threshold with the tax thresholds… tax relief is given to people who are not paying tax, but if you don’t give [tax relief] to them their pension will not be worth as much as they believe it will be… and the incentive to save will not be there,’ she said.
Altmann added that women can opt in to their workplace pension scheme if they wish, but said pensions may not be the best way for people on lower incomes to save. She said the government should allow people to opt in to saving in both a pension and an individual savings account (ISA).
‘The thrust of play should be getting people to save for the long term, not directing them to just one product,’ she said.
To find out more about auto-enrolment, check out this guide from The Lolly: Pensions: what you need to know about auto-enrolment
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