By anyone’s standards, automatic enrolment has been an astonishing public policy success, perhaps the outstanding success of the last quarter century. In a decade it has reversed the decline in the number of people saving into a workplace pension, creating roughly 10 million new workplace pension savers.*
Contrary to some expectations, the implementation of automatic enrolment was not derailed by the financial crisis and instead it prospered during the 2010s. Considered essential by the Treasury and DWP, it has continued to be supported through the pandemic by government and thankfully employers too. Increasingly, it’s just a normal part of running a business in the UK.
The benefits are not just limited to the number of people saving – the transformation in the quality of mass market pension provision has been a major benefit, with the launch of many new master trusts.
Following the successful roll out of a new regulatory regime offering greater protection for savers, we have seen consolidation of many trusts that are unable to meet the demands that the increased governance framework rightly demands.
Our aim has always been to offer, a well-governed, straightforward, quality pensions saving product capable of providing all who save with us, with good quality outcomes that properly reflect what they have worked to achieve.
The benefit of being a profit for people organisation without the need to satisfy shareholder expectations, means we are able to fully focus on our members and ensure we put their interests first.
I’m incredibly proud that over the past decade, The People’s Pension has grown to be one of the largest master trusts providing nearly 6m people with a valued home for their hard-earned savings.
While it’s clear auto-enrolment is a resounding success, we can’t ignore its shortcomings and the need for reform. With the first decade of automatic enrolment now complete, we need a mature debate about the future to ensure it reaches its full potential.
Our initial findings from research with the Pension Policy Institute, using data from the latest Wealth and Assets Survey, shows that 54 per cent of households and 57 per cent of individuals have not and are not saving enough, to meet the replacement rates set by the Pension Commission in 2004.**
The Pensions Commission suggested that an adequate savings level was roughly 16% of band earnings for a median earner. Policymakers set the statutory minimum savings rate at half that with the assumption that the shortfall would be made up through additional voluntary saving. However, the majority of employees and employers are anchored to the minimum contribution level.
So as auto-enrolment turns 10 this year, how do we ensure it fulfils its potential and provides workers across the UK with an adequate retirement income? We think two things are clear. First, as a pension provider, we believe it’s our role to provide evidence and research that shows the depth and subtleties of the adequacy problem. It’s for government, employers and trade unions to lead the debate on what changes are required to arrest what is looking likely to be a major shortfall for many and the unhappy prospect of a less than comfortable retirement. Pension providers have a role in this conversation, but the debate must be broadened so that the sector isn’t just talking to itself.
Second, the cost-of-living crisis makes the ability to fund increases in contributions or changes to automatic enrolment thresholds very unlikely at this point. It may be several years before the economy is sufficiently healthy to sustain this type of change. Government and the pensions sector should use this time to plan. A sensible first step would be to gain agreement to the implementation of existing policy commitments and principally setting a timetable for the roll out of the 2017 review conclusions.
So, in contrast to a decade ago, we are now dealing with the problems of success. Automatic enrolment has dramatically increased the number of people saving into a good quality workplace pension. But it is some way off reaching its potential. We need a new conversation and a broad consensus, reaching well outside the pensions sector, to chart the way forward.
*Department for Work & Pensions, Workplace Pension Participation and Savings Trends of Eligible Employees Official Statistics (2020)
**Pension Adequacy: A Pension Saver’s Perspective report, prepared by Ignition House and published by B&CE (2022)