Key groups, including the self-employed aren’t saving enough, so we ought to consider whether there should be changes in policy to expand the population to whom automatic enrolment ought to apply. Admittedly, it’s going to be hard to make rapid progress on this because of the damage caused to the economy by coronavirus.
Latest figures from the Office for National Statistics (ONS) show that, as of April 2020, nearly 8 in 10 workers, or 77.6%, participated in a workplace pension, compared to less than half (46.5%) back in 2012. This increase is almost entirely down to the 10 million plus workers automatically enrolled into their company’s pension scheme during the past 9 years with, crucially, an opt-out rate limited to 9%. The latter figure is much smaller than the roughly one third opt-out rate anticipated in DWP’s social research.
Automatic enrolment participation rose by 0.1% in a year
The latest ONS figures, taken from the Annual Survey of Hours and Earnings, show that participation levels rose just 0.1% during a 12-month period, and have suggested that a ceiling has been reached. That might well be true, but the AE story hasn’t come to its natural conclusion just yet as there’s still a long way to go before policymakers can pat themselves on the back and declare ‘job done’.
While the latest participation statistics may have exceeded pre-2012 expectations, there are millions of workers who currently remain out of reach of this most successful of policies and there’s already a clear roadmap for how a significant proportion of this cohort can be drawn into AE. We’ve long called for the age threshold for auto-enrolment to be lowered from 22 to 18, which would bring more than 900,000 young workers into a workplace pension.
This is one of the recommendations included within the DWP’s 2017 Automatic Enrolment Review, recommendations that Pensions Minister Guy Opperman has said the Government remains committed to by the ‘mid 2020s’. That seems a reasonable timeline given that the pathway out of the pandemic for the UK economy is far from certain. While we wouldn’t suggest government enacting its policy to expand AE until the economy has recovered, there are costs to waiting.
Reforms are needed
According to the ONS, only 20% of the youngest members of the workforce, those aged 16 to 21, have a workplace pension, further illustrating the pressing need to include over 18s in AE. With people understandably reluctant to work longer, it may make sense for those who can, to start saving sooner.
We’ve also called for the lowering of the earnings threshold from £10,000 a year from one job to £6,240, a move that would mean that 1.2 million lower paid workers, the majority of whom would be women, would have access to a workplace pension. Providing the lowest paid workers with the safety net of a workplace pension to bolster the State Pension must be a medium-term priority for any government.
A longer-term objective must be the implementation of a workable mechanism for including more than 5 million self-employed workers within auto-enrolment. The key, in our view, would be automatically enrolling self-employed people through the tax system.
Rather than have reached its peak, auto-enrolment has merely completed the first important leg of a journey that’s already transforming the retirement prospects of millions.
Tim Gosling, head of policy for The People’s Pension