Even auto-enrolment’s biggest supporters would have struggled to predict the project’s success since its inception. With the first contribution hike safely navigated, and the final (for now) stage due next year, the picture is relatively rosy – despite our survey showing an increase in opt-out rates at some firms.
But while the number of employees saving into a pension has increased substantially, there are a number of notable gaps in the puzzle, the biggest of which is the question of how to incorporate self-employed workers into the system.
Recent research highlights the importance of the task at hand. A paper by Prudential, published in early November, found that more than half of self-employed workers – to whom AE does not apply – want the law changed to encourage retirement saving.
Alarmingly, 43 per cent admit to having no form of pension. Some 27 per cent backed the expansion of AE to the self-employed, while a further 27 per cent said they would support compulsory pension saving.
In recognition of this, chancellor Philip Hammond’s latest Budget revealed plans for the Department for Work and Pensions to explore this area, with a paper due to be published this winter.
Last month Nest announced separately it would start testing solutions to cater for the self-employed over the next couple of years.
Riding the hike
In the meantime, sights are firmly set on early next year, when combined employer and employee contributions will rise from 5 to 8 per cent. The greatest strain will be placed on employees, who will see contributions increase from 3 per cent to 5 per cent, whereas employers will see a rise from 2 per cent to 3 per cent.
Adrian Boulding, director of policy at Now: Pensions, says research conducted by his firm found that more than three-quarters (77 per cent) of savers plan to remain opted-in in spite of the increase, with 55 per cent saying they believe pension saving is important for a more secure future, and 22 per cent stating the employer contribution is too valuable to miss out on. But the answers given by certain employers offered a different complexion.
“When we surveyed senior decision makers at large, medium and small companies on their preparedness of the contribution increases in April 2018, 72 per cent understood the planned rises that were to take place, but awareness dropped to 42 per cent for April 2019,” Mr Boulding says.
“Although these planned increases have been in place for a number of years, it seems that employers could risk being caught out. There’s plenty of support available for business owners in order to help them understand and communicate the benefits of workplace pension saving.”
A spokesperson at Legal & General believes the industry is well-positioned to cope. “We undertook a communications exercise to remind employers of their duties and provided them with sample communications to issue to their employees on the benefits of contributing towards their workplace pension.
“The April 2018 increases have not led to a rise in opt-outs or cessation, and we are not expecting this to change next year.”
Our own data paints more of a mixed picture (see table 2), with opt-out rates increasing for the likes of Aviva (from 7.3 per cent to 9.9 per cent) and Now: Pensions (from 5 per cent to 9.4 per cent).