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22 June 2020 12:42

Legal & General United Kingdom Buyer

TPR urged to nudge savers back into pensions

Employees who have opted out of their workplace pension during the coronavirus crisis should be encouraged back into saving more quickly than usual, MPs have said. The Work and Pensions committee urged the Pensions Regulator (TPR) to consider helping such workers re-enrol sooner than the current three-year timeframe under auto-enrolment rules. In its 111-page report, published this morning (June 22), the committee heard evidence from David Fairs, executive director of regulatory policy, analysis and advice at TPR, that contributions paid during the pandemic could end up being particularly valuable for savers. The report stated: "Employers cannot legally be encouraged by their employer to opt out of their pension contributions, but many people may opt out voluntarily if their incomes fall because of the pandemic. He said: "The Covid-19 pandemic has placed huge strain on household incomes and it is inevitable some people struggling to make ends meet will have felt it necessary to opt out of their workplace pension.

However, three years of missed contributions is not immaterial – someone earning £30,000 who had been auto-enrolled at the minimum level and chose to opt-out would have £5,702 less going towards their retirement, including £2,138 in employer contributions and £713 in tax relief." The report also warned the Covid-19 pandemic had created new opportunities for pension scammers. While it praised TPR, the Financial Conduct Authority and the Money and Pensions Service for their alertness and quick response, the committee urged regulators to work together to determine whether their communications had been effective. "We urge the regulators to work together to monitor the effectiveness and reach of their communications." The amount of State Pension people will receive depends on how long they have been making National Insurance (NI) contributions towards it. But, how many years of NI contributions do you need to make in order to qualify for the full, 'new' State Pension? How many years of NI contributions do you need to receive any State Pension amount?

If you've lived or worked abroad you might still be able to get some new State Pension. You'll need 35 qualifying years to get the new full State Pension if you do not have a NI record before 6 April 2016. For people who have contributed between 10 and 35 years, they are entitled to a portion of the new State Pension. When you're working you pay NI and get a qualifying year if: You might be able to pay voluntary NI contributions if you're not in one of these groups but want to increase your State Pension amount. You can have gaps in your NI record and still get the full new State Pension.

If you have gaps in your NI record that would prevent you from getting the full new State Pension, you may be able to: Employers who opt out of their workplace pension during the coronavirus pandemic could be encouraged back into retirement saving more quickly than usual, MPs have suggested. The Work and Pensions Committee recommended that the Pensions Regulator should consider whether employees should be helped to re-enrol earlier than would happen normally under automatic enrolment. But the committee heard evidence that contributions paid during the pandemic could end up being particularly valuable for savers. It continued: "Employees cannot legally be encouraged by their employer to opt out of their pension contributions, but many people may opt out voluntarily if their incomes fall because of the pandemic. "We recommend that the Pensions Regulator consider whether employees who do opt out during the pandemic should be helped to re-enrol earlier than would happen normally under auto-enrolment." Commenting on the report, Tom Selby, a senior analyst at AJ Bell, said: "The Covid-19 pandemic has placed huge strain on household incomes and it is inevitable some people struggling to make ends meet will have felt it necessary to opt out of their workplace pension.

The committee also said the Pensions Regulator should be alert to the risk of unscrupulous actions by employers during the pandemic. The report said: "If an employer is making deficit reduction contributions at a lower rate because of the pandemic, no reasonable person would expect them simultaneously to be paying dividends to shareholders and bonuses to senior executives. The Covid-19 pandemic has also created new opportunities for pension scammers – and the committee urged regulators to work together to monitor the effectiveness and reach of their communications. The committee also said rates of older benefits should be raised to help those who have not yet moved to Universal Credit and who are struggling to meet extra costs. Stephen Timms, chair of the Work and Pensions Committee, said: "The coronavirus pandemic has highlighted weaknesses in a social security system which at times is too inflexible and slow to adapt to support people in times of crisis." The Work and Pensions Select Committee (WPC) has urged The Pensions Regulator (TPR) to remain alert to the risk of unscrupulous employers who could look to take advantage of recent Covid-19 easements.

In a report on the Department for Work and Pension's (DWP) response to the Covid-19 pandemic, the committee praised the regulator for striking the "right balance" between acknowledging the difficulties faced by employers and the need to protect member savings. Easements around deficit reduction contributions (DRCs) were highlighted as a particular concern, with the committee warning of employers who are not in financial difficulty but simply seeking to take advantage. The WPC's report stated that "no reasonable person" would expect a firm that has suspended or reduced DRCs to be simultaneously paying dividends or bonuses, and urged TPR to "keep a close eye on this area", and to raise the alarm if any abuse is detected. Of course it is not only the regulator that must remain alert to risk, with WPC also highlighting the increased risk of pension scams amid the Covid-19 pandemic. The committee's report praised the proactive messaging and alertness shown by TPR, the Money and Pensions Service (Maps) and the Financial Conduct Authority (FCA), in response to the increased risk of pension scams. It urged the regulators to "work together" to monitor the effectiveness and reach of these communications, while the WPC itself will be undertaking "detailed work on pension scams in the near future". Considering this, the committee recommended that TPR consider whether employees who have opted out during the pandemic, perhaps due to financial strains, should be helped to re-enrol earlier than would normally happen. AJ Bell senior analyst, Tom Selby, added: "The Covid-19 pandemic has placed huge strain on household incomes and it is inevitable some people struggling to make ends meet will have felt it necessary to opt-out of their workplace pension. "However, three years of missed contributions is not immaterial – someone earning £30,000 who had been auto-enrolled at the minimum level and chose to opt-out would have £5,702 less going towards their retirement, including £2,138 in employer contributions and £713 in tax relief." How many years of NI contributions do I need to make for a full state pension? The new, basic state pension rate is £175.20 in the tax year 2020/21. This applies to people who have reached state pension age before April 6, 2016.