Labour may expand pensions scheme

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Labour is examining plans to include more than 1.5 million extra people in automatic workplace pension schemes, shadow work and pensions secretary Rachel Reeves will say.

The proposal to include lower earners in the Government’s pensions auto-enrolment scheme would include more than one million lower earning women who Labour say have been excluded from the project.

In a speech to the Resolution Foundation on Thursday, Ms Reeves will say the rise in zero-hours contracts, part-time and low-paid jobs means more people risk missing out on the chance to save for retirement.

Labour estimates the proposal to lower the threshold for auto-enrolment from the current level of £10,000 to the National Insurance lower earnings limit of £5,772 will cost £20 million by 2018/19 due to extra pensions tax relief.

The party is examining plans to pay for the proposed scheme by reducing the cost of appeals against fitness-to-work assessments, which cost the Department for Work and Pensions (DWP) £30 million last year.

Ms Reeves is expected to say: “Under David Cameron millions of working families facing a cost-of-living crisis are finding it harder and harder to save for their retirement.

“The latest government figures show the amount the country saves is set to fall across the next Parliament and, for millions the cost-of-living crisis could continue well into their retirement.

“The Pensions Commission established by the last Labour government set out a plan to help people save into a workplace pension.

“But the Government left out 1.5 million people from workplace pensions, including more than a million women in poorly paid work when they increased the level of earnings to qualify for auto-enrolment.

“Retirement should be something to look forward to, but for far too many people the insecurity they face during their working life is set to continue when they retire.

“With the rise in zero-hours contracts, part-time and low-paid jobs and insecure work, an increasing number of people risk missing out on the chance to save for their retirement.

“The Government’s failure to encourage more people to save threatens to store up huge costs for taxpayers in the future with a rising benefits bill.

“A Labour government would back people who do the right thing, work hard and save for their retirement.

“We are considering detailed proposals which could ensure the 1.5 million workers excluded from workplace pensions, are able to save for their retirement.”

Neil Carberry, CBI director for employment and skills, said: “Given we are half-way through the roll-out of automatic enrolment, changing the rules again is unlikely to assist businesses or workers. It’s important we keep things as simple as possible.

“Businesses would face increased costs from this change, and it’s not clear that automatically enrolling this group of low earners is necessarily in their long-term interests.”

Work and Pensions Secretary Iain Duncan Smith claimed the “unfunded promise” would put families’ financial security at risk

He said: “This is yet another unfunded promise that would mean more spending, more borrowing and more taxes. It would hit businesses with higher costs and more red tape, and ultimately would put jobs at risk. It’s the same old Labour.

“We have introduced automatic enrolment to make sure more people save for their retirement – and this year’s Budget announced a radical overhaul of the pension system that will transform the way we save and make it easier for people to save for their future.

“As part of our long-term economic plan, we are backing people who work hard and want to build up financial security for themselves and their families. Labour would put this all at risk.”

Meanwhile, Pensions Minister Steve Webb described Labour’s plans as “an absurdity” that would see those on low wages take home less money than before.

He said: “Labour’s plans are an absurdity that would bring the whole scheme into disrepute.

“At a time when we need to focus our efforts on improving people’s skills and prospects to boost their incomes, Labour’s plans would see the take-home pay of people already on the lowest wages take a damaging hit, all in the name of ‘subsidising’ a state pension already set higher than their current earnings.

“The New State Pension, introduced for new pensioners from 2016, will see everyone who has worked and paid all their National Insurance contributions receive a guaranteed weekly payment set above the means test.

“Anyone earning over £5,800 can still opt into a workplace pension if they wish – but for many people on the lowest incomes it will not be the right option for them. Automatically enrolling such people when we know that to be the case would be totally irresponsible and make no sense.”

Professor Philip Booth, editorial director at the Institute of Economic Affairs, said the plans would make cost-of-living pressures worse.

He said: “Extending auto-enrolment down the earnings scale will nudge people into joining pension arrangements who can ill afford to do so. Many such people will move to full-time employment later in life and, at that stage, it will become appropriate for them to start to save for their retirement.

“The proposals will also load yet more costs on to the employer – both administrative costs and costs of the employer matching contribution. Politicians should be making it easier, not more difficult, for employers to take on more staff.

“The effect of these proposals will be to exacerbate cost of living pressures by putting downward pressure on take-home pay.”

TUC General Secretary Frances O’Grady said: “It is absolutely right to extend pensions auto enrolment to the low paid who are missing out.

“The Government has stealthily been depriving more low paid women from pensions every year – it is time to put that right.”

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