“DWP needs to learn lessons from the past and ensure anyone within this bracket are told they will have to wait an extra year to claim their state pension,” he warned.
Potentially hundreds of thousands of retirement plans will need to be rejigged, he said, adding that for many, the state pension will not provide a desirable standard of living in retirement, so other savings will be required.
“Many people will face a challenge to bridge the gap between when they want to retire and when the state pension starts.”
Auto-enrolment
Last week, the pensions minister Laura Trott backed a private members bill which would result in the automatic enrolment regime reaching millions more people.
A private members bill from MP Jonathan Gullis, backed on March 3 by the government, grants two extensions to automatic enrolment – abolishing the lower earnings limit for contributions and reducing the age for being automatically enrolled from 22 to 18 years old.
The expansion of automatic enrolment was proposed back in 2017 by a government review, but no action had been taken since then to implement those proposals.
The minimum contributions are currently set at 8 per cent for earnings between £6,240 and £50,270.
These are too low and need to be increased soon, Selby said.
“However, going too far, too fast would risk causing a damaging spike in opt-outs, particularly with millions of Brits battling against sky-high inflation,” he said.
Butler said it seems that any change to the percentage of salary contributed by employees and employers is off the table while inflation remains high.
“Further down the line we’d like to see minimum contributions increase to 12 per cent as contribution levels are the single biggest lever we can pull to reduce under-saving and improve retirement outcomes,” he said.
“The economic forecasts [to be set out] may help inform the debate about when and how quickly contributions should be increased and everyone will be hoping that predictions of falling inflation this year do come to pass.”
Annual contribution – current system (£30,000 earnings)
Earnings | Qualifying earnings | Personal contribution | Employer contribution | Tax relief | Total contribution |
£30,000 | £23,760 | £950.40 | £712.80 | £237.60 | £1,900.80 |
Source: AJ Bell
Annual contribution – with lower earnings band removed (£30,000 earnings)
Earnings | Qualifying earnings | Personal contribution | Employer contribution | Tax relief | Total contribution |
£30,000 | £30,000 | £1,200.00 | £900.00 | £300.00 | £2,400.00 |
Source: AJ Bell
VCTs
The Treasury Committee today (March 10) called for the chancellor to clarify whether the tax breaks for venture capital trusts (VCTs) and enterprise investment schemes (EIS) will be extended beyond April 2025, when they are due to expire.
In the "mini" Budget last year, former chancellor Kwasi Kwarteng extended the tax reliefs for VCTs and EIS, but the committee has called for clarity on these extensions.
Chair of the Treasury committee, Harriett Baldwin, said the committee had received a "significant volume" of evidence on the importance of the schemes to allow businesses to grow, and for firms to plan the future.
