Risk of over-saving
The study sought to understand whether removing the £10,000 earnings trigger would cause harm by squeezing current income and living standards.
In order to arrive at a figure for the number of low earners who could be “at risk”, certain groups were identified as having a reasonable mitigating factor reducing their risk of detriment.
For instance, if an individual was already paying into a pension they are already used to making those financial contributions.
Another example of those less at risk are people on a low income who live in a household where another person – perhaps a partner or spouse – earns more.
After removing those groups deemed at a lower risk, the research found an estimated 300,000 people, out of 3.17mn total lower earners, who could be at a higher risk of financial detriment if brought within the scope of AE.
Low earners
The report, ‘Uncovering the Profile of Low Earners in the UK and the Potential for Pension Saving through Auto-Enrolment,’ found around one in nine employees, equivalent to 3.17mn people in 2022, meet the age criteria for automatic enrolment but earn less than the trigger income of £10,000 a year.
They may be earning lower amounts for a short period with potential for improvement in the future, or have lower earnings for a longer period.
Despite the variations in circumstances, younger people are the most over-represented demographic group among low earners.
There are also a significant number of people close to retirement age, and an over-representation of females.
Low earners are also more likely to be paid by the hour compared to the wider working population.
John Upton, policy analyst at the PPI, said: “Our modelling demonstrates that nine in 10 low earners have some mitigating circumstance that would mean that, if they were to be automatically enrolled, their living standard is unlikely to be reduced below an adequate level.
“These mitigating circumstances could be things like living in a household with a high overall income, expecting higher earnings after graduating university, being already enrolled anyway, or being ineligible for automatic enrolment for other reasons.”
As AE policy is further developed, it is worth considering whether levers can be introduced which ensure greater involvement of low earners who will not be disadvantaged by saving, Upton explained.
“With low earners being such a complex group, this is no mean feat.
“However, automatic enrolment has been one of the greatest success stories of pensions policy in recent history, and to include more of the right people in it would be a worthwhile achievement.”
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said one of the key debates on AE is making sure that only those who can afford to save into a workplace pension actually do so.
