Automatic enrolment 

How auto-enrolment has worked so far

This article is part of
Guide to automatic enrolment

How auto-enrolment has worked so far

It has been nearly a decade since the groundwork for auto-enrolment was laid down in the 2008 Pensions Act.

Since its official launch in October 2012, more than 7.5 million people have been automatically enrolled into a workplace pension scheme, with the expressed intention of government to bring 10 million people in the UK into some form of pension saving by 2018.

The aims of auto-enrolment are simple: it obliges employers, irrespective of size or industry - both public and private - to provide a qualifying workplace pension to their staff, and to contribute to it. Not to do so by the staging date will result in fines.

To capture people at the lower end of the earnings scale, the minimum salary an individual must have in order to qualify is £10,000.

While individuals can opt out if they wish, they are enrolled automatically into the workplace scheme.

The Department for Work & Pensions (DWP) has estimated auto-enrolment will lead to £17bn more a year in workplace pension saving by 2019 to 2020.

The success of auto-enrolment relies heavily on the inertia element of behavioural economics to keep people in the scheme - in other words, trusting that most people simply won't get around to opting out and will simply remain invested, eventually seeing the benefit of the accumulated savings they are building up as a result.

According to Chris Daems, director of Cervello Financial Planning, said: "Auto-enrolment has been a success for large and medium-sized businesses."

As getting millions of people into a pension scheme requires a significant effort on all companies across the UK, from FTSE 100 listed corporations right down to gardening services with just a handful of staff, the DWP implemented a tiered phasing-in of auto-enrolment.

Story so far

The staging dates started with the largest firms, moving onto the medium-sized firms and now to the smallest employers, who are getting ready to comply with their 2018 staging date.

Data from the National Employment Savings Trust (Nest), as at October 2016, reveals:

  • Around 230,000 employers have met their auto-enrolment deadline since 2012.
  • At its peak, around 2,800 employers will be setting up a pension scheme every day.
  • Currently, 1.2 million small and micro employers have to meet their duties in coming months.

According to Andy Beswick, managing director of business solutions for Aviva, opt-out rates have been significantly less than expected, at about 10 per cent.

He comments: "For those that did opt out the first time round, re-enrolment is now under way so many of  those people may now have had a change in circumstances, which means they will now stay in their pension scheme and start saving for retirement."

According to Nest, its own opt-out rate is 8 per cent. As Robin Armer, senior business development manager for the provider, comments: "Our members tell us being enrolled has given them the sense of relief. For many, auto-enrolment was the gentle nudge they needed to start saving."

While some providers such as Nest are able to provide figures showing how many small businesses were early adopters of automatic enrolment - the figure for Nest stood at more than 180,000 as at October 2016 - the total number of Britain's small and micro-businesses who have complied to date is still uncertain.