Over 12m UK workers are not eligible for auto-enrolment into a workplace pension, according to data from the Association of Consulting Actuaries (ACA), led by those employed in smaller firms.
The ACA 2017 Pension Trends Survey suggested 40 per cent of employees in smaller firms are left out auto-enrolment, which has a minimum income trigger of £10,000.
ACA’s survey, which polled 466 employers of all sizes with over 760 pension arrangements, also suggested employee opt-out rates are rising towards one in four at smaller firms.
These figures are expected to rise as auto-enrolment minimum contributions are set to increase.
When combined with the self-employed – which are also not currently eligible for auto-enrolment - there could be over 12m individuals largely relying on the state pension and other state benefits post-2018, by which time most employers will have complied with the auto-enrolment policy, ACA said.
The government is currently conducting an auto-enrolment review, launched last year by the Department for Work & Pensions (DWP), which is expected to publish a report in December.
Auto-enrolment’s coverage, adequacy and how engaged people are with it are the three areas that are being looked at in the review.
Currently the auto-enrolment minimum total contribution is 2 per cent - 1 per cent each from the employee and employer.
From April 2018, the minimum total contribution will increase to 5 per cent, with the employer paying 2 per cent.
One year later, it will increase again to 8 per cent, with the company paying 3 per cent.
It is expected these higher contribution rates will see opt out rates rise further.
A total of £17bn a year will be going into workplace pensions by 2019 to 2020 because of auto-enrolment.
From April 2019, auto-enrolment median opt-out rates are forecast to rise to 16-20 per cent of eligible employees from 11-15 per cent at present, the survey showed.
Some 44 per cent of employers oppose increases in the minimum contributions post-April 2019, whilst 41 per cent support a gradual increase.
According to Bob Scott, ACA’s chairman, the government “needs to develop a coherent ‘next steps’ strategy that is ready to address the anticipated potential danger of rising opt-outs”.
For the majority of small and micro-employers, the “increases in both employer and employee contributions come very soon after their staging date for auto-enrolment and land in the middle of sizeable projected increases in the ‘living wage’ and pre-Brexit economic uncertainties”.
Mr Scott said: “Our survey points to the need – part of what we see as the ‘next steps’ strategy – that looks to a gradual, but essential increase of the default level of contributions into defined contribution schemes.
“This is needed to ensure that many more people save sufficient amounts for an adequate retirement income.”
ACA is proposing a gradual increase to eventually around 16% of earnings.
Mr Scott added: “Without commitment from government to ensure that sums saved into auto-enrolment are meaningful, we see little prospect that as a society we will be able to address the fears of a growing gulf in retirement incomes from one generation to the next.”
maria.espadinha@ft.com
