In its blog published 4 November, AE has come a long way, but we all have further to go, the Pensions Regulator (TPR) recognises the successes of automatic-enrolment in encouraging retirement saving. It also acknowledges that it could do more to enforce employer compliance with AE obligations.
Is there scope, 10 years on from auto-enrolment’s introduction, to look beyond employer duties and adjust the parameters of auto-enrolment itself to increase engagement by savers?
Eligibility
Current restrictions mean that anyone under 22 or over state pension age, or whose income does not exceed the earnings trigger, currently £10,000 a year, is not an eligible jobholder and does not need to be automatically enrolled. Despite this, based on government figures, auto-enrolment appears to have been relatively successful in narrowing the gender participation gap for full-time workers, particularly in the private sector.
However, the story is likely to be different for part-time workers. For schemes using the default defined contribution (DC) method for meeting their auto-enrolment obligations, minimum contributions are based on qualifying earnings (currently £6,240- 50,270 a year). Removing the lower earnings threshold, so that every pound counts, might be one way to help balance the system.
Looking ahead, the government intends to legislate to lower the age threshold for automatic-enrolment to 18 and to remove the lower earnings limit which should increase auto-enrolment participation and allow more people to save.
Unfortunately, proposed reforms will still stop short of helping the genuinely self-employed. Given the nature of, and disparity between, different types of self-employed work, a one-size-fits-all solution is likely to prove elusive. The answer here may instead lie in some sector-specific approaches, although this is unlikely to happen overnight.
Engagement
Despite attempts to make employer communication obligations easier, the auto-enrolment legislation remains fiendishly complicated and highly rigid, with traps for the unwary. Furthermore, greater workforce mobility, combined with auto-enrolment, makes it more likely that individuals will build up small pension savings across multiple employers and providers during their lifetime, potentially resulting in ‘lost’ pensions. While guidance from MoneyHelper is useful, the process of reconnecting lost pensions remains administratively cumbersome for individuals.
Simplifying the legislation and introducing flexibility could lay the foundations for extending the scope of auto-enrolment to help those with multiple lower-paid jobs, or working in the gig economy to save for retirement. Additionally, pensions dashboards should provide a more straightforward method of tracking down lost pensions. It remains to be seen whether the combination of auto-enrolment and pensions dashboards leads to better understanding and engagement from savers as to their retirement income.
Emily Whitelock is a senior associate at Sackers