As the final tranche of employers enter the inaugural auto-enrolment (AE) contribution stage, a key plank of policymakers’ plan to tackle the UK’s dwindling savings culture appears to be on track – for now.
Statistics published by the Pensions Regulator (TPR) support this: a total of £87bn was saved through AE in 2016 alone, the total number of workers auto-enrolled now stands at almost 9m, and the overall proportion of private sector saving has increased by 31 per cent since AE’s introduction in 2012.
Five years on and almost every employer in the country – large and small – is now captured by the scheme, in what has so far proved a relatively smooth process. How long this plain sailing lasts is up for debate. The next 12 months could prove as significant for AE as the whole of the preceding half decade.
First on the agenda are the results from the government’s review of AE, due out by the end of 2017. Next up will be the inaugural increase in contribution rates.
As of next April onwards, the minimum employer contribution will rise from 1 per cent to 2 per cent, with employees’ share increasing from 1 per cent to 3 per cent. Additional increases will follow in 2019, taking total contribution levels to 8 per cent.
The upshot of these upheavals will be that some of AE’s unanswered questions – how opt-out rates respond to rising contributions, whether contributions should increase further still, and how self-employed workers should be captured – will come into focus more sharply.
New year’s revolution
The government review of AE, mandated to take place every five years under the original terms of the project, has been in train since February this year.
The review is headed by three chairs: Ruston Smith, trustee director at The People’s Pension, Jamie Jenkins, head of pensions strategy at Standard Life, and Chris Curry, director of the Pensions Policy Institute.
The main themes it has considered, as set out by the Department for Work and Pensions (DWP) at the start of the year, are coverage, engagement and contribution levels.
Adrian Boulding, director of policy at Now: Pensions, suggests the review represents a “perfect opportunity” for the government to set the road map for AE policy.
He says: “I am keen to see the removal of qualifying earnings from the calculation, so that contributions are on every pound of earnings, as well as the removal of the AE trigger that is currently set at £10,000. This would result in a greater proportion of people saving through AE and would improve outcomes for all savers, but particularly part-time workers and the low paid – the majority of whom are women.”
Sally Thomson, policy and positioning manager at Scottish Widows, is another advocate of removing the £10,000 trigger, together with ditching both the lower and upper age restrictions of 22 and state pension age respectively.
Furthermore, she adds that minimum contributions should increase to 12 per cent: “I hope the rules that govern AE are simplified. Those currently excluded, who do not benefit fully, are able to receive a better deal going forward.”