Automatic enrolment  

Developing the savings culture

Developing the savings culture

It is now approaching 14 years since the pensions commission first mooted the idea of automatic enrolment in the UK, and almost six years since it started. So, it seems a good time to check if the policy is working.

The Department for Work and Pensions (DWP)’s latest statistics looking at workplace pension participation and savings trends are certainly a good place to start.

As warrants such a large social experiment, auto-enrolment was rolled out gradually. Starting off with the larger employers, moving to small and medium employers, and over the past couple of years ending with micro employers.

Contributions started off at 1 per cent member and 1 per cent employer. And although they edged up slightly last April to 2 per cent employer and 3 per cent member, they will rise again next year to their final (for now) level of 3 per cent employer and 5 per cent member.

Self-employed pension participation


The DWP’s latest statistics measure participation up to April 2017 – before the latest contribution increase kicked in. Although fears were expressed at the time, anecdotal evidence suggests the increase has not had a material effect on participation rates.

Key points

  • DWP statistics show that despite the rise on contribution rates for auto-enrolment there has been no impact on participation rates
  • The average an eligible saver puts into a private sector scheme is less than half of that put in by a public sector worker
  • During the past 10 years, the number of self-employed people saving in a pension scheme has more than halved from 30 per cent to 14 per cent

The good news is auto-enrolment has boosted the numbers of people saving. Overall, 84 per cent of eligible employees now participate in a workplace pension. The figures for public sector schemes are, as expected, higher than private sector schemes (92 per cent versus 81 per cent). This is an incredible change compared with the days before auto-enrolment, when private pension scheme membership had slumped to 55 per cent in 2012 – only 10.7m employees.

However, a snapshot of participation tells only part of the story. To get a decent income in retirement, we need people to stick with the savings habit and to save sufficient amounts. 
Let’s look first at whether people are saving persistently.

This information is gathered by the Office for National Statistics (ONS) in its annual survey of hours and earnings (ASHE), which defines persistent savings as eligible employees saving into a workplace pension in at least three years out of four. An eligible employee can disappear from the cohort either through changes in their eligibility status, stopping saving, leaving the labour market, or moving to an employer who does not return the ONS questionnaire.

The percentage of persistent savers fell in 2017 to 73 per cent (from 77 per cent the previous year). But the ONS is unable to say that this is definitely because of an increase in non-persistent savers – more that they struggle to capture the right data. So although we cannot currently call this out as a problem, it may be one to keep an eye on.

The data on the amount people save is clearer. The annual amount saved increased by 5 per cent in 2017 to £90.3bn, and the bulk of this was increased savings in private sector schemes. 

A more interesting picture is painted by looking at the average amount saved per person. In public sector schemes this was £8,414 in 2017. However, the average an eligible saver puts into a private sector scheme is less than half of that – only £3,873. More pertinently, this figure is falling, and is almost 40 per cent lower than it was 10 years ago (£6,206).