Margaret Taylor: Auto-enrolment is not perfect but tax-free savings are worth keeping

Margaret Taylor: Auto-enrolment is not perfect but tax-free savings are worth keeping

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AUTO-ENROLMENT, which has been rolled out over the past few years so that everyone earning at least £10,000 a year now pays into a workplace pension, is a far from perfect system.

Chief among its flaws is that it can discriminate against some women, who are far more likely than men to have part-time jobs and so far less likely to hit the £10,000 earnings target.

Then there is the small matter of the scheme allowing unscrupulous employers to discriminate against employees who did not choose to join their pension scheme prior to auto-enrolment.

While most workplace schemes previously saw employers contribute in the region of at least three per cent of salary for workers who chose to pay in the same amount, the current auto-enrolment minimums of one per cent each have allowed many employers to weaken their terms for new entrants.

But the massive upside of the system, which will soon require employers to pay in two per cent, with that figure rising to three per cent in April 2019, is that it has turned us into a nation of savers at one fell swoop.

True, the minimum contribution requirements are paltry and, even allowing for decades of growth, will be nowhere near enough to fund a comfortable retirement.

But they are a start and, although employees choosing not to opt out will see their minimum contributions increase to five per cent in 2019, arguably an affordable start.

The true beauty of the auto-enrolment scheme is that it lets people put aside a portion of their income before that income has been taxed, which trumps any kind of saving made with post-tax cash.

Anyone arguing that that is a benefit worth giving up, even if it does free up cash to deal with other, more current, financial issues, should probably turn their attention elsewhere.

Employer contributions would be a good start, given that five per cent might seem like less to give up if it was being boosted to 10 each month.



Source: heraldscotland.com

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