Auto-enrolment (AE) celebrated its seven-year anniversary at the start of this month, having achieved a number of milestones since its introduction. By February 2019, the initiative had brought 10 million members into workplace pensions, just one year after staging had concluded.
But has AE been a success story? Of course, the short answer is yes, as otherwise many people would not be saving into a pension. Indeed, some 56% of RP’s sister title Professional Pensions’ Pensions Buzz respondents this week agreed it has been a success story, compared to 30% who thought not.
Aries Insight director Ian Neale says: “AE is one of the few policies that is under no significant threat from major change in government, so that’s good. The gradual staging has been successful, and opt-outs haven’t been high.”
The Pensions Regulator (TPR) confirmed last month that there was “no evidence to suggest a surge” since the hike in April, when minimum contribution rates jumped to a total minimum of 8%, from 5% the previous year.
However, there are still some issues which need ironing out and addressing, to ensure maximum retirement gains for members.
Neale adds that, generally, the legislation around AE remains “unduly complicated”. He says: “It could have been a lot simpler, but this being Britain, terms and conditions apply.”
Schemes have a legal duty to declare compliance to TPR, and tell the watchdog how they have met their AE duties.
It is arguable that there should be a review of the legislation, a sentiment which Hymans Robertson partner and senior DC consultant Susan Waites agrees with.
She says: “I think the legislation was written in such a way that it was almost trying to prevent employers from getting around AE [compliance]. But the evidence shows employers haven’t really tried to do that.”
She also notes that employers are still having to “jump through hoops”, which is not really adding much value.
She continues: “If we’re going to ask employers to contribute more for their members, it would be great if that could be coupled up with a review to see if some of the compliance could be simplified.”
Furthermore, there are still some groups in the UK which do not qualify for AE: Those who earn under the £10,000 threshold, those under the age of 22, and the self-employed.
The government has put forward its intention to resolve some of these issues in the AE review in late-2017, but not until the mid-2020s. These being: lowering the age limit to 18 and reducing the earnings threshold.
However, earlier this year it rejected calls to speed up changes to AE, despite increasing pressure to boost overall savings pots.
NEST director of strategy Zoe Alexander says: “We do think that the age eligibility and earnings threshold need to come down, but it’s obviously a complicated decision for government.
“There’s lots of other pressures, and a huge amount of complexity in the political climate at the moment.”
Bringing the self-employed into pensions is also a challenge.
In the AE review, the government said will work to implement its manifesto commitment by testing targeted interventions for the self-employed, and reconfirmed its intention in December last year.
Waites says the self-employed issue is “a difficult one, but it is a challenge which needs to be addressed, as evidence suggests there are more and more self-employed people in the UK”.
According to the Office for National Statistics’ (ONS), the number of self-employed people increased from 3.3 million in 2001, to 4.8 million in 2017. By July 2019, this number increased to 4.93 million, according to latest ONS data.
Waites continues: “I think one of the things that might help [the self-employed] is income targets – so engaging people with retirement planning. We think [targets] could work really well.”
She used the example of the Hymans Robertson guided outcomes initiative, which helps people to work towards retirement targets.
Waites continues: “It helps members by suggesting to them to increase contributions, or changing their retirement age for example.”
The idea of national income targets was also put forward by the Pensions and Lifetime Savings Association last year, to show the lifestyle people could afford on different levels of income.
A good action point for the government to consider is how often it will conduct an AE review, in order to note down any progress, and where it needs to take more action.
According to Neale, an AE review should be conducted possibly every three to five years, but not more frequently. However, he says: “To leave it a decade is far too long.”