Automatic enrolment was launched in a blaze of glory in October 2012.
It started with the biggest employers enrolling new staff into pension schemes, but quickly smaller employers came on board, and now even the ‘one-person’ employer – for example the parent employing a nanny – has to offer pension provision.
On first glance, it has been a rip-roaring success. The Department for Work and Pensions' recent report "Analysis of future pension income" showed 10.8mn people have been automatically enrolled, and private pension participation has more than doubled from 42 per cent in 2012 to 86 per cent in 2021. That is a tremendous statistic.
However, that does not mean all pension saving problems have been solved.
Worryingly, the DWP also highlighted that a large proportion of people are still not saving enough for their retirement; more than two in five (43 per cent) are not expected to be able to afford an annuity that would meet a target replacement rate for an adequate income in retirement, which is 67 per cent of pre-retirement earnings for a median earner (assuming they took a 25 per cent tax-free lump sum as well).
Put simply, many more people are saving through AE, but they are just not saving enough.
The DWP is acutely aware of these issues, and as long ago as 2017 it pledged to change the AE terms. Two key changes were promised: lowering the age of AE from 22 to 18; and ditching the lower band of qualifying earnings, instead calculating contributions from the first pound of salary.
Despite signalling these plans the DWP has sat on its hands for the past six years. Maybe because it wanted the right economic environment for employers and workers to increase contributions, maybe because it could not find the opportunity to draft the legislation.
Whatever the reason, the DWP is now pushing forward.
Instead of a DWP-sponsored pensions bill, it is backing a private member’s bill brought forward by a Conservative backbench MP. This offers a different way of getting legislation done, but with the government’s backing that the bill should pass.
If the bill is attacked – not impossible given it aims to divert money from pay to pensions at a time when many are struggling to heat and eat – the DWP can always subtly distance itself from the private member’s bill. The political risk is smaller, no screaming headlines of government U-turns.
Although this development sounds positive, there is a catch. If the bill is successful, the changes become law, but the start date will only be set by the government when it deems the time is right.
Before that happens, it has to report on current workplace provision and model the impact of the changes – for members, employers, and Treasury in terms of additional tax relief.
