Automatic enrolment – is it solving the pensions crisis?

Automatic enrolment began to be rolled out across all employers from October 2012, starting with the largest.  The hope was that the millions of people who were not saving for their retirement would be swept into pension saving, and that once enrolled, they would not opt out.

On the face of it, automatic enrolment has been a success – over 4 million people have now been automatically enrolled, and the opt out rate has remained low at around 10%.  However, the statutory contribution level is relatively low – at the moment, the minimum level of employer contribution is only 1% of qualifying earnings, with the employee contributing 0.8% and obtaining a further 0.2% from the government in the form of tax relief.  The contributions are set to rise in stages, but only to an overall total of 8% of qualifying earnings.

The Pensions Quality Mark (PQM) recognises that this level of contribution may not be sufficient to provide members with an adequate retirement income.  We have therefore set the standard for contributions at a level that we feel is appropriate to allow meaningful retirement saving.  Schemes applying for the PQM must have a minimum contribution of 10% of pensionable earnings, with at least 6% coming from the employer.  For the PQM PLUS, an aspirational standard, we ask that at least 15% of pensionable pay is contributed, with at least 10% coming from the employer.

Tracey Dawson