Help to Save initiative ‘could cause AE opt-out surge’

December 13th, 2017

The roll-out of the government’s Help to Save scheme could lead to a rise in automatic enrolment (AE) opt-out rates and have a much bigger impact than the Lifetime ISA (LISA), Aegon has warned.

It comes as HM Revenue & Customs (HMRC) has published an updated timetable in its draft legislation for the rollout of the government-backed saving scheme designed to support working people on low incomes to build up their savings.

The scheme will start with a trial in January 2018, rolling out in stages, and will be available to all those eligible from October 2018, instead of the originally planned April start which HMRC had confirmed in October.

According to HMRC, over four years, regular savers can deposit up to £50 a month and could receive up to £1,200 in tax-free bonuses under the initiative.

It will be open to working people who receive working tax credits, and those who receive universal credit with a household income or individual income of at least £542.88 in their last monthly assessment period before their Help to Save application.

Aegon head of pensions Kate Smith said as people’s incomes are under pressure, they will need to balance their long-term plans against more short-term considerations.

“There could be a variety of low-earners taking it up, and for them, every single penny counts. It could bite with AE if it’s taken up by lots of people and we don’t know if members have excess money to pay this.”

She added saving in an employer’s pension scheme will still be the best deal around, as employees not only benefit from a government top-up on their own contributions but also the employer’s contribution, every time they pay in.

“So currently every £50 an individual saves under automatic enrolment immediately becomes £112.50. This is set to increase as contributions rise from April 2018.”

Minimum contributions will rise to a total of 5% with a minimum 2% employer contribution next year, and then to a total of 8% with a minimum 3% employer contribution in 2019.

Hargreaves Lansdown head of retirement policy Tom McPhail commented: “We’ve had incessant tinkering with pension rules, an ISA for every day of the week and now Help to Save; inevitably some investors will end up confused about the best course of action. This illustrates the importance of good quality member engagement and guidance from pension providers.”

Lifetime ISA

It comes after there were similar concerns the LISA, which came into force in April, would increase AE opt-out rates.

Last October, Labour called for a delay in the LISA until 2018 in a stark warning about the potential consequences of AE, saying savers would choose between a workplace pension and LISA, which could lead to more opt-outs.

However, Smith said this has not been the case as of yet:

“People thought the LISA was going to impact opt-outs and did not really make a difference, but it was a different audience to Help to Save and people that have gone for it are around the age of 39, or are parents helping children out.”

She added LISA is more about the property market rather than pensions and has not taken off yet.


Source: Professional Adviser