Auto-enrolment - the story so far

Earlier this year we saw the last legal increase to auto-enrolment pensions and it’s now over 7 years since the legislation was introduced. This may make you think that the main bulk of the work is done, however there is still a lot to do if the UK is to resolve the retirement savings gap. Here is a look back at the progress which has been made so far and why there is still plenty to do.

What’s going well

Auto-enrolment continues to go well with the total amount saved rising to 90.4 billion, an increase of 7 billion from 2017. It’s also encouraging that 87% of eligible employees are now saving for retirement in a workplace pension, in the private sector participation among employees has doubled in the last 6 years! Critics of the legislation believed that employees would opt out as soon as contribution rates increased, but encouragingly retention rates are holding up with 72% of employees having saved into a workplace pension in at least three of the last four years, a fall of just 2% on this measure since 2017.[1]

Why there is still work to do

There is no doubt that auto-enrolment has increased the number of people saving into a pension, however experts believe that they are paying far too little into their pots. Data from the Office for National Statistics (ONS) recently revealed that in 2018 employees saving into a private sector defined contribution (DC) scheme had an average annual contribution level of just 5.1% of salary[2], incorporating both employee and employer payments. Although in 2019 minimum contributions have increased to 8%, experts have suggested further increases to at least 12% of salary. It is believed that this level of saving is required for employees to hit a target income that they can live on in retirement.

Regulator continues to clamp down on employers

The Pension Regulator handed out fines worth £68.6 million to employers who failed to comply with their pension duties in 2018, the highest amount issued over the past 5 years.[3] There will be no let up over the upcoming summer months either with the Regulator conducting short-notice inspections on employers who they suspect to not be complying with auto-enrolment duties. The consequences of not complying for any business can be very severe, find out more about the first custodial sentences handed out by the Regulator in our previous article.  

And finally…

We’ll have to wait until this time next year to see if the final increase will be a deciding factor in relation to opt-outs but for now it’s encouraging to see that most employees are staying enrolled and saving for their retirement. While it is great that people are saving for their future, most employees are still not saving enough to provide the standard of living they want or expect in retirement. 44% of employers were concerned about the long-term consequences of employees not being able to retire, however in many cases employers will have to contribute above the government’s minimum requirements if they wish to secure a comfortable retirement for their employees.  If you have any further questions please contact your Aspira Corporate Adviser or call the office on 0800 048 0150.      

The Financial Conduct Authority does not regulate some aspects of auto-enrolment.

[1] Workplace Pension Participation and Savings Trends of Eligible Employees Official Statistics:2008 to 2018, Published: 5th June 2019

[2] Auto-enrolment success masks inadequate savings rates, industry warns, www.ipe.com, viewed 26/06/19

[3] Pension Regulator issued fines worth £69m in 2018, www.ftadviser.com, viewed 26/06/19

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