Regulator’s AE report: Work still to do despite policy success

The proportion of private sector savers participating in a workplace pension grew from 55 per cent in 2012 to 87 at the end of March 2019, with over 10 million people automatically enrolled into a scheme by that date, a report by The Pensions Regulator found.

The next natural stage of auto-enrolment, which gets people started on their savings journey, is to boost engagement so people actively choose to set more aside for their own retirements

Tom Selby, AJ Bell

The largest increase in private sector participation was seen amongst young people between the ages of 22 to 29. Participation levels for women improved significantly, increasing to 85% for both male and female eligible employees in 2018. 

Barnett Waddingham head of workplace wealth Mark Futcher said: “Both the number of savers, and the total amount saved into pension schemes has sky-rocketed in the last seven years. It’s undeniable that this policy has been a spectacular success.

“It’s critical that the government continues to build on this and educate people on the benefits of the scheme and provide the tools for more thorough engagement with savings.”

Self-employed saving deteriorates

Although auto-enrolment was successful in boosting pension participation rates overall, it does not cover all demographics. The self-employed group saw a continuous decline in participation from 27 per cent in 2008-2009 to 15 per cent in 2017-2018.

The Department for Work and Pensions stopped short of pursuing an extension of auto-enrolment to the self-employed in response to its 2017 AE review, instead opting to trial targeted interventions.

Master trust Nest is to begin testing these interventions, following its findings earlier this month that while the self-employed do not like the inflexibility of pensions, they do want helpsaving for later life.

Hargreaves Lansdown head of policy Tom McPhail said: “If we gave the individuals ownership of their pension, it would enable pension companies to maintain a relationship with the individual and to encourage them to keep contributing to their retirement when they move to self-employment.”

“At present every time someone changes jobs they are forced to have a new pension. This is madness; they should be free to take their pension from their last  job to their new employer and ask them to put their employer contributions into this existing arrangement,”he added.

Can AE minimum rise further?

Critics also noted that despite the increase in participation, on average DC scheme contributions remained low, with minimum payments at just 5 per cent of salary in 2018. 

This has since increased to 8 per cent in 2019, but experts have warned that this will not deliver a ‘comfortable’ level of retirement income.

AJ Bell senior analyst Tom Selby said: “I think the pensions industry has been guilty of talking down to younger people and simply saying ‘save in a pension, it’s good for you’. This is not an easy task if you have low or unreliable earnings, for example, or other more pressing priorities. However, it’s important people who choose not to save understand the consequences of doing this – namely saving a lot more later, retiring on less or retiring later.”

Mr Selby said increasing contributions beyond 8 per cent of band earnings would not be an easy task and caution should be taken to not spur significant number of opt-outs or lump huge costs on businesses. 

He said: “The next natural stage of auto-enrolment, which gets people started on their savings journey, is to boost engagement so people actively choose to set more aside for their own retirements. As people’s funds rise in value and technological developments allow easy access to our finances, there is a real opportunity to drive greater interest in pensions among the public.”