Auto-enrolment hits 10.7m savers at 10 year milestone
Ten years after the start of auto-enrolment, more than 10.7m employees have enrolled into workplace pension schemes, according to recent statistics from The Pensions Regulator.
Tomorrow (1 October) marks 10 years since the beginning of auto-enrolment, which saw the first members enrolled on 1 October 2012.
In 2012 minimum contributions started at 2% before being raised to 5%. They are currently at 8%.
Many are celebrating the success of auto-enrolment in encouraging millions more to save for retirement however, the cost-of-living could be about to take its toll on auto-enrolment.
Over a third (34%) of eligible employees surveyed by investment platform AJ Bell said they had either already opted out or are considering opting out of auto-enrolment.
Almost half (47%) of 18 to 34-year-olds had either opted out or said they may opt out.
Over one in ten (12%) of those who had opted out were not aware they would lose their employer contribution as a result.
Tom Selby, head of retirement policy at AJ Bell, said: “As we approach the 10-year anniversary of the first employee being automatically enrolled into a workplace pension, there are warning signs flashing over the impact rising inflation could have on retirement saving.
“Rising living costs are threatening to trigger a surge in opt-outs, with more than a third of those auto-enrolled members saying they have either already opted out or are considering opting out.
“Worryingly, younger savers appear more likely to quit their pension scheme than their older counterparts. Almost half (47%) of respondents aged 18-34 said they had either opted out or were considering opting out, compared to 29% of those aged 35-54 and just 16% of over 55s.
“This likely reflects the fact younger savers, on average, have lower earnings and might therefore feel less able to afford pension saving as prices rise. The decision to cap annual energy bills for the average home at £2,500 will undoubtedly help millions of people, but whether it will be enough to prevent a spike in opt-outs remains to be seen.”
The Government has pledged to implement the findings of a review of auto-enrolment which in 2017 recommended reducing the minimum enrolment age from 22 to 18, and allowing contributions from the first pound of income.
The initial timeline for implementing the changes was the mid-2020s, but Hargreaves Lansdown expects that this may now be delayed due to the recent change in Pensions Minister.
Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, said: “The way ahead is unclear. Government has been under pressure to announce a timetable for implementation for the 2017 Auto-enrolment Review. Initially planned to be introduced sometime in the mid-2020s the former pension minister Guy Opperman said the reforms would be introduced ‘in the fullness of time.’ Meanwhile the ABI put forward ideas for how the minimum contributions levels could be increased to 12% in the coming years.
“Opperman (the former Pensions Minister) has since been replaced on the pensions brief and his successor will face a bulging in-tray and there’s every chance auto-enrolment enhancement could be kicked into the long grass. They will also face the very real headache of deciding whether now is the right time to expand auto-enrolment. The current cost of living crisis is causing many people real financial turmoil and there is every chance that making them put more away for tomorrow will take away from how they manage today.”
The All Party Parliamentary Group on Financial Resilience (APPG) has also urged the Government to introduce auto-enrolment for the self-employed via a reformed tax system.
The Financial Resilience APPG was set up in the wake of the Coronavirus pandemic to give MPs a forum for discussion and to make recommendations to Government about how to improve resilience.
• AJ Bell surveyed 1,123 UK adults aged between 22 and 65 and employed.