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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

Pensions may not be the answer, but women need to save

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.

Enrolment thresholds

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

9 comments so far. Why not have your say?

Jeremy Bosk

Sep 13, 2012 at 11:21

Economic changes have meant that increasingly large numbers of people are forced into part time and temporary jobs with spells of unemployment as a regular feature. Once anyone manages to save as little as £16,000 in an ISA they are denied many forms of social security until they have spent their savings. This makes ISAs an unsuitable vehicle for the poor and low paid in unstable employment - mainly but not exclusively women. Capital in the form of pensions savings is exempt from means testing.

It is an evil system which guarantees an old age of misery and squalor for a large part of the population.

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Rose G

Sep 13, 2012 at 11:35

All the changes to the our pensions means that we are ultimately at the mercy of whatever government of the day, who can do just as they please to our savings/pensions - there is no point in saving if you are a fairly ordinary paid worker - most of the pensions schemes now in the system is to benefit those earning six figure salaries, whose bonuses are more than the ordinary individual would earn in a lifetime - stay well away from these schemes as you have no options or choice left, as governments try to send us into penury, while their pensions are protected!

The private pensions industry has demonstrated absolutely no skill in investing savings so that it incentivises people into saving - all the pensions industry does is allow managers to mismanage funds with no recourse to taking action against those who invest pension funds unwisely - mind you, if you are into gambling, then this may well be the time to lose the shirt off your back, a scheme guaranteed to lose all your savings - there are no other such guarantees in other walks of life - save now, so that your pensions manager can retire early, while you continue to work till you drop!

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Rob Walker

Sep 13, 2012 at 12:38

If I was 40 with a young family and had to choose between a family holiday or £1000 into a pension scheme, it's a no brainer.

a) I and others could get lasting happiness from remembering a nice holiday

b) At 67 the extra £50 or so a year pension would do little to raise or lower my quality of life.

Unless there is a significant investment, using income that is more or less surplus to requirements, there is little point in denying oneself what is affordable today for the sake of some aspiration of being slightly better-off in old age.

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Jeremy Bosk

Sep 13, 2012 at 13:05


You are forgetting compound interest. You can easily earn 7 per cent on investing in shares. Reduce that by 3.5 per cent to allow for inflation and you have a real rate of return of 3.5 per cent. Which over 27 years amounts to a total of interest and original investment equal to £2531. An annual income at your rate of return of 5 per cent of £125 a year. Or £175 if you remain in equities.

If you saved £1000 every year the end amount would be much greater. In fact £47,822. Which would earn you an annual income of £3,760 at 7 per cent. Play around with different savings rates at this site:

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Michael Hellman

Sep 13, 2012 at 13:11

I just dont think people get it. You have to save, regardless if it is in a pension or not. Who is going to pay otherwise?? Do any of you really think the state will cough up going forward.

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Sep 13, 2012 at 13:20

Jeremy Bosk re "You can easily earn 7 per cent on investing in shares"

All pension advisers are NOT allowed to quote figures like 7% as history has shown this simply isn't true. the truth is you are luck if your investments just keep up with inflation.

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charlie 12

Sep 13, 2012 at 13:53

Auto-enrolment was a common feature in company pension schemes until the 80's, when someone in Government thought that being compulsory ws removing a freedom of choice. When they then realised that the money being spent on goods such as mobile phones and satellite tv might have given a temporary boost to the economy it meant that the country was storing up a huge problem for the future. It has taken 8 years from its re-birth to bring it to reality. In the meantime so much has been lost it is impossible to replace.

Rose G - you perpetually respond with nothing more than cynicism, the plight of the working class, and opression by the bosses. There are millions of retired working class people who enjoy a comfortable retirement only because they were compelled to contribute (along with an employer's contribution) into a pension scheme. Life is not perfect, but it could be a hell of a lot worse.

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Sep 13, 2012 at 15:54

Jeremy Bosk - you can easily lose 7 per cent on investing in shares as well.

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Jeremy Bosk

Sep 13, 2012 at 22:05


I am not a pensions adviser so I am allowed tell the truth. Anyone with even half a brain can earn 7 per cent a year on the stock market. Just avoid investment advisers and salesmen on commission. DYOR.


Of course you can lose money on the Stock Market. I have in the past. But having invested intermittently since the 1960s, I have made much more than I lost. You will definitely lose money if you keep it in a deposit account because of inflation. You will lose money if you waste it. You will lose money if you are either unlucky or stupid.

So you work hard not to be stupid or ignorant and you try to make your own luck.

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