Government urged to define auto-enrolment next steps

Government urged to define auto-enrolment next steps

The Association of Consulting Actuaries (ACA) is urging the government to define a "gradual, but essential increase" in the default level of savings in auto-enrolment.

According to the professional body's research, which surveyed 349 employers sponsoring more than 550 pension schemes, 81 per cent of company bosses support the government's proposal to extend auto-enrolment to those aged 18 or more, which is tabled for the mid-2020s.

A small majority of respondents also agreed contributions should be from the first pound of earnings, and that minimum statutory contributions should be increased post-April 2019.

Employers support an increase in the savings level in 2021 to 8 per cent – 4 per cent each for employer and employee – on all earnings.

From April 2019 onwards, minimum auto-enrolment contributions will be 8 per cent of earnings between £6,136 and £50,000 (2019/20 band), with a minimum of 3 per cent from employers.

Company bosses with 500 or more employees supported 10 per cent (5 plus 5 per cent) on all earnings.

According to Jenny Condron, the ACA's chairwoman, this phased increase in contributions is needed to ensure that many more people save sufficient amounts, for both an adequate retirement income and one where they have real choices to spend some of their accumulated savings, as they approach or reach retirement.

She said: “In our recommendations within the report we favour earnings from the first pound being eligible for auto-enrolment by 2021 as proposed by the 2017 auto-enrolment review. 

“At the same time, actions are needed to draw more of those on lower incomes and the self-employed into auto-enrolment levels of contributions, beginning with the gig economy’s quasi-employers.

“Then, from 2025, with due notice having been given, there is the need to gradually phase in rises in total contributions until they reach 12-14 per cent of earnings.”

Minimum contributions were increased overall from 2 to 5 per cent in April 2018, which for 85 per cent of employers didn’t have an adverse impact on scheme participation, the ACA said.

Some 75 per cent of respondents are forecasting no decreases in contributing members as a result of the next increase in April.

However, 65 per cent of employers with fewer than 10 employees expected modest or substantial decreases in scheme participation in the next hike.

The survey concluded that cessation rates from auto-enrolment schemes – the number of employees leaving schemes after the initial four week opt-out period – is around 11 – 15 per cent of employees.

According to data from the Department for Work & Pensions (DWP), most of those leaving after the initial month opt-out period are job movers.

The ACA's research also found that typically between 26 per cent and 30 per cent of staff presently aren't eligible to be automatically enrolled into schemes, with this increasing to 36 per cent to 40 per cent at small employers. 

These rates explain why over 9.24 million employees on low incomes, part-time workers or those too young or old are missing out on auto-enrolment savings, the association stated.

The report noted that when the self-employed are included, upwards of 13m, largely private sector workers, are still not saving regularly for a private pension.