Watchdog hails success of auto-enrolment pensions

Ten million more people now saving with big rises in private sector staff, the young and ethnic minorities

Regulators and financial experts are hailing a rare public policy success after figures on Britain’s “auto-enrolment” scheme revealed 10 million more people are now saving, with record amounts going into pensions.

British workers saved £90.4bn into their pension schemes in 2018, according to the Pensions Regulator – £7bn more than the year before. Behind the surge in saving is auto-enrolment, the scheme set up by the government in 2012 to make sure everyone, whether they work for a supermarket or a corner shop, has a private pension to add to their state pension.

In its first year, around 1 million workers from big companies were brought into the scheme, and there were fears that as smaller workplaces were drawn into the net, more and more people would opt out.

But the pensions regulator said the numbers enrolled rose to 6.2 million in 2016 and had now hit 10 million.

“Since 2012 there has been a significant increase of 8 million to 18.7 million eligible employees participating in a workplace pension (87%) in 2018, showing the positive impact of the workplace pension reforms to date.”

Less than half of private sector workers had a pension in 2012, but the figure has now reached 85%.

Critics had warned that forcing small employers such as hairdressing salons to offer a pension would create unnecessary red tape and bureaucracy. But the Pensions Regulator said that between 2016 and 2018 there was a surge in small and “micro” employers joining the scheme, with 1.5 million employers now fully enrolled.

Auto-enrolment has had a dramatic impact on the participation of ethnic minorities in pension saving. Before auto-enrolment, just 36% of Pakistani and Bangladeshi workers had any form of private pension, but this has now jumped to 60%.

Young adults are also big beneficiaries. The regulator said 84% of 22- to 29-year-olds were in a pension scheme in 2018, compared with 24% in 2012.

Since April this year, the amount deducted from salaries into the pensions has risen from 2% to 5%, with employers paying a further 3%. But the pensions regulator said there was little early evidence of a significant increase in opt-outs.

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

There is one group that has been left in the cold by auto-enrolment – the self-employed, who are not required to join the scheme, and whose numbers have increased sharply in recent years.

Tom Selby, a pensions expert at AJ Bell, said: “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.”

However, Tom McPhail, of Hargreaves Lansdown, cautioned against pushing up contribution rates too soon. “Politicians shouldn’t rush to ratchet up the minimum contributions. The current auto-enrolment rates are a good starting point and given other pressing financial concerns, such as problem debt and lack of cash reserves for many households, a rush to mandate higher pension savings rates now could be damaging to household financial resilience.”

Contributor

Patrick Collinson

The GuardianTramp

Related Content

Article image
Construction workers denied access to auto-enrolment pensions
Builders made to use ‘umbrella firms’ to receive pay are losing out on pension contributions

Chris Menon

30, Jan, 2016 @6:59 AM

Article image
Women hit hardest by auto-enrolment pensions change
Raised earnings threshold for auto-enrolment means 170,000 fewer people qualify for employer's scheme

Harriet Meyer

30, Mar, 2014 @5:59 AM

Article image
Pensions: auto enrolment for small businesses delayed until 2017
Implementation of auto enrolment pensions will be staggered over five years to allow smaller firms longer to prepare

Jill Insley

25, Jan, 2012 @4:13 PM

Article image
Warning over poor performing auto-enrolment pensions
An 'advice gap' for employers means many may have opted for schemes with high charges and poor returns, reducing the amount members get upon retirement

Hilary Osborne and agencies

11, Oct, 2012 @10:40 AM

Article image
Early results of auto-enrolment encouraging, say pensions experts
Fewer than 10% of those enrolled have chosen to opt out, but small and medium sized businesses yet to be included

Harriet Meyer

08, Aug, 2013 @4:26 PM

Article image
Auto enrolment pensions: workers in smaller firms face higher charges
Pensions minister says competition is giving the first enrollers a fantastic deal on charges, but concedes that as smaller firms come on board they will rise

Hilary Osborne

23, Jan, 2013 @3:05 PM

Article image
Auto-enrolment pensions: 37% of employees plan to opt out
Lack of affordability cited as main reason why over a third of UK workers plan to shun the government's pension initiative

Hilary Osborne

27, Feb, 2013 @11:13 AM

Article image
Auto-enrolment pensions: all you need to know
Despite every person in the UK workforce being affected, many are still in the dark about auto-enrolment

Rupert Jones

01, Oct, 2012 @8:22 AM

Article image
Pensions auto-enrolment: what will it be worth to you?

Some may only receive £9.84 a week from the new pension scheme, while younger people could be tempted by the figures

Patrick Collinson

16, Jul, 2012 @9:48 AM

How does pension auto-enrolment work?

A guide to the huge changes taking place in pensions this year

Rupert Jones

13, Jul, 2012 @9:58 PM