• The Pensions Regulator has today published its annual report on automatic enrolment, revealing £90.4billion was saved by eligible members in 2018
• Government hails the success of the reforms in boosting savings levels of people in their 20s and closing the gender pensions gap
• AJ Bell research suggests women who have entered income drawdown since April 2015 have an average fund worth £118,000 – 34% less than the average man
• Problems including the exclusion of self-employed workers, net pay anomaly and low contributions risk undermining the long-term success of the reforms
Tom Selby, senior analyst at AJ Bell, comments:
“While the Government is justified to some extent in lauding the success of automatic enrolment, the reforms are by no means a silver bullet to solve the UK’s retirement problems.
“The fact over 10 million people, many of whom are young and women, have been automatically enrolled into a pension since 2012 is to be celebrated, but average contributions remain painfully low.
“In 2018 the average contribution to a private sector defined contribution scheme stood at just 5%, although this should increase following the rise in the auto-enrolment minimum contribution to 8% of relevant earnings earlier this.
“However, even at this higher level most people will fall short of their retirement aspirations.
“A 25-year-old who earns £30,000 a year paying in the minimum might end up with a fund at worth around £200,000 in today’s terms by age 65.
“That would buy an annual inflation-protected annuity worth about £5,500, or a total income of £14,000 when combined with the state pension. Anyone with ambitions above this level needs to take responsibility and look to save over and above the auto-enrolment minimum.”
The lingering problems with auto-enrolment
“Although auto-enrolment has been successful in increasing the number of women saving in a pension, until wages are equalised and parenting responsibilities shared more evenly the disparity will remain.
“Our research suggests women entering drawdown have pensions around a third lower than their male counterparts, so we have a long way to go to achieve genuine gender equality in pensions.
“While auto-enrolment has at least made a start in boosting pension participation rates among women, nothing has been done to help the growing army of self-employed workers save for retirement.
“The latest official estimates show almost 5 million people are now classified as self-employed in the UK, with only 16% of this group saving anything for retirement. If the Government fails to address this problem today it risks creating a retirement time-bomb, with a whole generation potentially divided between the pension haves and the pension have-nots.
“Low paid savers are also subject to an unfair pensions lottery which can mean they miss out on tax relief if they are automatically enrolled into a ‘net pay’ scheme.
“This is because these schemes take contributions from people’s pre-tax pay rather than adding basic-rate relief automatically. Anyone not paying income tax therefore does not receive their tax relief bonus.
“This is simply not right and the Government must urgently address this issue, which cruelly hurts the savings aspirations of the lowest paid workers.”
