‘Truly transformative’ AE policy brings 10 million into pensions

Kim Kaveh reports...

Auto-enrolment (AE) has now brought 10 million workers into occupational pensions since its introduction in 2012, latest government figures reveal.

This is one year ahead of the Department for Work and Pensions’ (DWP) estimation that AE would hit the 10 million mark by 2020. Today’s (11 February) announcement also means that one million more people have been enrolled since December 2017.

The programme concluded its final stages of roll out in February last year, while contributions rose from a total minimum of 3% to 5% in April 2018. This will jump again to 8% in April this year, with 5% minimum employee contributions.

In an exclusive comment piece for RP’s sister title Professional Pensions, pensions and financial inclusion minister Guy Opperman (pictured) said it is time to take stock of this “truly transformative policy”.

He added: “To put that [10 million] number in context, it is equivalent to the total population of Scotland, Wales and Northern Ireland combined. A dramatic sea change. Looking back to 2012, the culture of retirement saving in this country was markedly different.”

Opperman noted that, in 2012, the proportion of eligible private sector workers participating in a workplace pension hit a low of 42%, but that figure has now risen to 81%.

He added: “Ultimately, our ambition is to bring earnings thresholds down so that people can start saving from their first pound earned. Together, we’re building a more secure financial future for Britain and I’m proud to be at the heart of it.”

The government set out its intention to remove the earnings threshold in the 2017 AE review, making every pound earned pensionable from the mid-2020s. However, the limit is set to rise from £6,032 to £6,136 in April for the 2019/20 tax year.

Challenges remain

Now Pensions director of policy Adrian Boulding said the planned increase to the lower earnings band shows it is “almost as though they’ve [the government] found the right station but have got on a train going in the opposite direction”.

He also noted: “Hitting 10 million auto-enrolled is a huge milestone and with minimum contributions rising in April there’s a danger that the government will think that its job’s done.

“But, we should all put the champagne on ice because there’s 12 million people who are still under-saving for retirement and this has to be tackled.”

Former pensions minister Baroness Ros Altmann said: “The behavioural theory behind the policy design is working brilliantly, as inertia has ensured workers who are automatically enrolled do not decide to opt-out.”

But, she lamented that the policy only covers those who earn more than £10,000 a year with a single employer, meaning many savers who are women, work part-time or have multiple jobs do not benefit.

Today’s announcement follows news from the DWP last December that it will develop and test new ways to include 4.8 million self-employed workers in pension savings. It also published an AE evaluation report at the end of last year, finding that opt-out rates at the end of June remained consistent with levels before the April contribution rate hike to a total of 5%.

It also today confirmed a range of new or strengthened powers for The Pensions Regulator in a bid to improve security for defined benefit members, with penalties as severe as seven years’ imprisonment.