Inflation could hamper auto-enrolment

Commenting on the latest figures, which show consumer price inflation remaining at a five-year high of 3.0%, Kate Smith, head of pensions at Aegon, said: “People are facing a triple whammy of squeezes in their purse, with inflation still running high, rising interest rates and little sign of real wage increases for the majority of workers. This combination of factors is putting a strain on households and inevitably makes saving a challenge.”

Smith added: “In the near future, these pressures could act as the first big challenge to the government’s auto-enrolment programme. With employee pension contributions set to triple from 1% to 3% in April there’s a risk opt-out rates may spike as people start to notice the impact on their take-home pay. The government has few options to avert this other than to offset the decrease in disposable income with an increase in the tax-free personal allowance.

“Employers also face hard decisions. With their auto-enrolment contribution doubling from next April, increases in the minimum wage and Brexit uncertainty, many will struggle to justify wage increases. Employers are between a rock and a hard place, not knowing whether to flag up auto-enrolment increases to their employees to be helpful and drive up pension engagement, or whether this risks putting them off pension saving.”

TUC general secretary Frances O’Grady said: “The government must stop turning a blind eye to Britain’s cost of living crisis. Household budgets are being stretched to breaking point.

“Wages will continue to lag behind inflation unless the chancellor acts. Next week’s Budget is a chance to give five million public sector workers the pay rise they are long overdue. And it’s a chance to invest in the kind of high-skilled jobs people can live on.”