Reform AE tax to help low earners and save £10bn a year

Michael Johnson’s most recent report, Reinforcing Automatic Enrolment, has 12 recommendations for the DWP review of automatic enrolment and was picked up by several leading pensions magazines, including Professional Pensions.

“The Centre for Policy Studies (CPS) has called on the government to reform incentives for auto-enrolment (AE), which it estimates could save the Treasury £10bn annually.

In its Reinforcing Automatic Enrolment report published today, CPS fellow and author Michael Johnson outlined 12 proposals to help the self-employed and low earners, such as abolishing the £10,000 minimum earnings threshold and lowering the minimum enrolment age to school leaving age.

He also said the AE review should consider the implications of scrapping all income tax relief and national insurance contribution (NICs) rebates.

His key message is that it is time to recognise that in order to really help the low paid, any incentive linked to tax-paying status does not work, and so tax relief should be replaced with a bonus-based structure totally disconnected with earnings.  He suggested a re-distributive 50% bonus paid on the first £2,000 of post-tax contributions, and 25% on the next £6,000, i.e. an annual bonus cap of £2,500, paid irrespective of tax-paying status.

He believes this would address so many seemingly unrelated issues, including the net pay problem for those with earnings between the £10,000 threshold and the Personal Allowance.”

Read the full article here.

Date Added: Friday 14th July 2017