Pensions  

Will auto-enrolment deliver?

This article is part of
Guide to Workplace Pensions

“The next challenge is to get them to increase their pensions.”

This is easier said than done, however, as Ms. Morrissey adds: “The success of auto-enrolment has been largely because it harnesses people’s inertia.

"Increasing contributions, however, requires a conscious decision to do so.” 

There are currently no government plans to increase minimum contributions, but some believe change is needed here too, as Laura Stewart-Smith, workplace savings manager at Aviva says: “We believe that further attention needs to be given to the level of minimum contributions – they should ideally rise to a 12.5 per cent split between employers and employees.”

Wealth adviser, Anna Sofat, associate director at Progeny Wealth suggests a stepped approach could also be helpful: “Over time, the contributions should be increased, for instance with age – starting low when young and increasing each year.” 

Lack of engagement

In the meantime, the lack of engagement remains an issue, as Ms Stewart-Smith says: “The main challenge with auto-enrolment is that it does encourage a degree of complacency and lacks the need for individuals to engage.

“With workplace pensions now, you can be auto-enrolled into a pension, at a default contribution rate, with a default retirement age and a default investment choice.

"Whilst admittedly this makes for a hassle-free journey, it can also lead to the assumption that all those ‘decisions’ are correct, which isn’t always the case.

"Employees should always be encouraged to take time to understand and consider the decisions that have been made.”

And there is very little evidence of engagement at the moment, as she observes: “The levels around pension engagement generally need improvement.

"For example, we know that over 48 per cent of savers over the age of 55 don’t know how much is in their pension pot.”

But there are promising signs at the other end of the age spectrum: “Since the introduction of auto-enrolment we’ve seen an increased engagement with pensions from our younger clients,” says Catriona McCarron, wealth manager at Ascot Wealth management.

And there could be ways of further engaging the young, as Jeannie Boyle, executive director and financial planner at EQ Investors says: “I'd like to see more impact investment options available in pensions.

"There are some ethical funds, but they're more about excluding arms and tobacco, rather than giving young people the opportunity to invest in assets that help create a sustainable future.” 

Regardless of age, re-thinking communication of auto-enrolment information could be key to improving engagement.

Ms McCarron observes: “In many cases auto-enrolment providers give a brief to companies for them to present to or pass on to employees, educating them on the savings input, fund options and charges. This isn’t always easily digestible.”