AE receives mixed review

Nine million workers are now saving into a workplace pension as a result of auto-enrolment. Hip hip hooray.

Another 3m are on course to join the bandwagon before the roll out is complete. Hip hip hooray times two.

Yes, the pension savings habit is spreading countrywide like a welcome rash, bringing joy and long-term prosperity in its wake. What more do you need in life to wipe away your post New Year blues than a dose of good pensions news? Hip hip hooray times three.

No wonder David Gauke, the former secretary of state for work and pensions, was beside himself with pension happiness.

The changes coming to auto-enrolment are way too little and way too late

The new normal?

“This government has rebuilt the UK’s savings culture,” he said, waxing lyrical, just before the Christmas festivities started in earnest. “For an entire generation of people, workplace saving is the new normal.”

Slightly over the top Mr Gauke – “cheeky and premature” were the words used by the excellent Patrick Hosking, financial editor of The Times – but then there is not much for the government to wax lyrical about at the moment.

Mr Gauke was waxing away because he had just announced the results of a review into auto-enrolment some five years after its birth. As he said: “My mission now is to make sure the next generation of younger workers have the same opportunities.”

The review does indeed include some positive initiatives. These include a drop in the age below which workers are excluded from auto-enrolment – to 18 from 22. It is a move that should benefit women in particular because it will give them more time to save, making good the periods of time they take out of the workplace to have children.

It is also great news that the slice of annual earnings (currently between £5,876 and £45,000) used to determine the amount of contribution will widen. Mr Gauke says these two measures alone will help 900,000 young people into pensions.

Post-New Year drinks all round then? No. The review’s recommendations were nothing but a massive disappointment. I must admit that the way the results of the review into auto-enrolment were presented in the press represented a masterclass in political spin.

The BBC, an organisation I much admire, fell for it hook line and sinker. On the day the government published its “ambitious” plans to give “millions a more financially secure retirement”, it challenged none of the information contained in the press release from the Department for Work and Pensions. 

As I listened to Radio 4 on that Sunday morning, my blood bubbled away like a volcano about to erupt. Surely, someone somewhere would look under the skin of the DWP release and realise that the auto-enrolment revamp was no more than a damp squib.

Sadly, it took until the Monday for the excellent Josephine Cumbo of the Financial Times to reveal the real truth.

Yes, the entry point for auto-enrolment will be 18 and yes the lower earnings limit is being scrapped. 

But not until the “mid-2020’s”. No wonder former pensions minister Steve Webb, who introduced auto-enrolment in 2012, was moved to say that the government’s recommendations were “shockingly lethargic”. 

There are other black holes in the government’s review of auto-enrolment, which the BBC singularly failed to mention. The self-employed will still remain outside the regime, although Mr Gauke did waffle on about ‘targeted interventions’ aimed at increasing the savings habit among the country’s 4.8m self-employed.

Too little, too late

There was also nothing to bring those people into auto-enrolment who have multiple jobs but no single employment where their earnings are high enough to qualify them for a workplace pension.

And of course, little about whether overall contributions under the regime will rise post-April 2019 once they hit a minimum 8 per cent. Eminently sensible given the multitude of concerns facing UK businesses as we edge ever closer to Brexit.

Yes, I agree with Ruston Smith, a director at Peoples’ Pension (and part of the auto-enrolment review panel), when he says that auto-enrolment has been a “game changer”. And Chris Curry, director at Pensions Policy Institute (another panellist), is right to say that in removing the lower earnings limit “we will be enabling people to contribute towards their pension savings from the first pound of earnings”.

But let’s cut to the truth. The changes coming to auto-enrolment are way too little and way too late.

All the best for 2018.

Jeff Prestridge is personal finance editor of the Mail of Sunday