Auto-enrolment is the UK’s diamond in the rough

Some have been easy to get on board with. For example, I admire the respect for an orderly queue. I like the frequency at which zebra crossings are placed. Cockney rhyming slang. Pret. 

Others I have been less enthused about. 

I’m under no illusion that the UK system is without its faults.

Like the fact most shops still use plastic bags. Or the fact you have two fewer public holidays each year than we do. Crumpets. 

But one difference that was not immediately obvious is the culture around pensions.

I’ll be honest, up until relatively recently a pension has not been on my list of priorities.

Talking about a pension was not something that happened in my house. It is not something that was spoken about in most of my previous workplaces either, and it certainly was not something my friends and I would sit around discussing.

For the first few years of my working life, investing in a pension did not really seem like an option. Largely because it was not made easy.

Ireland does not have the same system of auto-enrolment that the UK has and employers are under no obligation to even signpost their employees to a pension scheme, never mind contribute to a private one. 

It’s still a problem that young people aren’t saving enough for retirement. 

Luckily, that is set to change with a system of AE due to come into force in 2024.

Ireland’s minister for social protection Heather Humpreys said the scheme aims to “build a culture” of saving for retirement, something the UK government can pat itself on the back for starting some 12 years ahead of their Irish counterparts.

Don’t get me wrong, I’m under no illusion that the UK system is without its faults.

More needs to be done to help boost retirement savings for the self-employed who do not enjoy the benefits of AE, and typically save very little for later life.

There’s also the glaring issue of the pensions gender gap – in 2021 annual pension savings for men in the private sector sat at £40.2bn compared to £22bn for women.

And let's not forget about the pension underpayment scandal either, or the issues with the pensions of NHS staff.

But leaving all of this aside for a moment, the success of AE is undeniable 10 years on. 

It’s human nature that most of us aren’t good at planning that far ahead.

Quilter’s head of retirement policy Jon Greer recently described the introduction of AE as “arguably one of the most important and transformational changes to pension policy in the past decade”. 

Indeed, 10mn people have been added to workplace pensions since AE was introduced, with participation rates up from around 55 per cent in 2012 to 88 per cent in 2021.

That’s worth celebrating. And it is momentum that can be built on.

Engaging young people

It’s still a problem that young people aren’t saving enough for retirement. 

In September the Work and Pensions Committee highlighted that many newly auto-enrolled people make minimum contributions, not realising that this will not be enough to give them an adequate living standard in retirement.

Government and employers should build on that and seize the opportunity that AE created.

Analysis by the Pensions Policy Institute showed that only 37 per cent of individuals are on track for an adequate pension according to the definition used by the Pensions Commission.

It’s human nature that most of us aren’t good at planning that far ahead, never mind the fact that millennials and Gen Z have it a lot tougher financially than our parents' generation did. 

When homeownership feels out of reach for so many, putting money by each month for 40 years down the road falls to the bottom of the list of priorities.

AE works well in counteracting that element of human nature that prevents us from doing right by our future selves and has provided a base level for people to engage with pensions.

So the government and employers should build on that and seize the opportunity that AE created.

The system isn’t perfect, but kudos for getting this far.

Jane Matthews is a reporter at FTAdviser