Auto-enrolment savings to hit £17bn a year by 2020

Auto-enrolment savings to hit £17bn a year by 2020

A total of £17bn a year will be going into workplace pensions by 2019 to 2020 as a result of automatic enrolment, the Department for Work and Pensions has claimed. 

In its latest auto-enrolment update, the DWP predicted £8bn of that cash would come from workers' contributions, £6.9bn from employers' contributions and £2bn from tax relief.

The figures also predicted 10 million people workers would "be newly saving or saving more" as a result of auto-enrolment by 2018.

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That was out of an "eligible target population" of 11 million - suggesting around 9 per cent of people would opt out.

The majority of the eligible target population is made up of men, the DWP said, with women making up just 36 per cent.

The DWP put this down to "underlying labour market factors" such as earnings, working patterns and participation rates.

The research also found more than half the eligible target population was aged less than 40.

Overall, DWP found 76 per cent of workers met both the earnings and age eligibility criteria for automatic enrolment.

It found 19 per cent do not meet the earnings criteria, although half of them had the right to opt-in to a workplace pension with contributions from their employer.

Five per cent of workers, meanwhile, were ineligible for auto-enrolment because of their age.

Employers with more than 500 employees were predicted to be the biggest contributors by 2019 to 2020, making up £5.9bn (combined employer and employee contributions) of the £17bn.

The second biggest contributor by that date would be businesses with between five and 49 employees, which would contribute a total of £5.2bn.

Employees of firms employing more than 50 people were the least likely to earn less than £10,000 a year.

Forty-two per cent of employees of micro-businesses, meanwhile, did not earn enough to be automatically enrolled.

Pensions minister Richard Harrington said: "It is clear we are helping to create a culture of saving, giving people a much-needed boost to their pensions and the important work on roll-out continues.

"My mission is to ensure everyone has the opportunity to benefit from a workplace pension. For some people, this may be the first time they have saved in this way, and we must help them build a big enough savings pot so they can enjoy a comfortable retirement."

Philip Smith, director and defined contribution leader at PwC, said the figures showed "the continuing success of auto-enrolment in getting greater numbers of people involved". 

However, he said there was "trouble in store for future defined contribution savers" who do not have defined benefit pensions, and have not considered how much they may need in retirement.

"The current average contribution for those who are automatically enrolled is not enough to secure a comfortable retirement. Despite many savers knowing this, the perceived complexity around alternative pension options causes many to put off looking at better choices," he said.