Latest official figures show over 1 million employers have now automatically enrolled staff into a workplace pension
Over 9 million eligible workers enrolled – but 8.3 million still excluded from the reforms
Government will expand auto-enrolment to low earners and 18 year olds in ‘mid-2020s’
Raising contributions beyond 8% and boosting member engagement critical to building on early success
Tom Selby, senior analyst at AJ Bell, comments: “There is little doubt the early stages of automatic enrolment have been a success. The vast majority of workers are staying in their pension scheme and research suggests the idea of saving for retirement is slowly becoming the norm across society.
“However, it is important policymakers and the wider industry don’t spend too long basking in the glory of this achievement. While getting over 9 million people saving for retirement is to be celebrated, the difficult bit – increasing minimum contributions at a time when wage growth lags inflation – is yet to come. Given that most agree the minimum contribution rate will need to rise beyond 8% in order to ensure people build up a decent retirement fund, focus should now shift to when and how this can be done.
“The Government is right to take a measured approach to increasing contributions, learning the lessons from the initial rise to 8%. Policymakers should also be actively considering the next phase of the reforms, and we believe there is merit in exploring whether allowing members to divert contributions to a scheme of their choosing – rather than being limited to the scheme chosen by their employer – will improve engagement.
“The all-or-nothing nature of opt-outs could also be reviewed as the Government considers increasing contributions above 8%, with members potentially given the option to ‘opt down’ rather than opt-out altogether. Furthermore, initiatives such as ‘Save more tomorrow’, which has proved successful in the US, should also be considered.
“More broadly, politicians should reflect on how an independent commission and cross-party consensus have delivered one of the most successful retirement policy reforms in memory. We believe this approach should be replicated elsewhere, and particularly in relation to pension tax relief, to deliver long-term stability for savers.”