Auto-enrolment pensions – ten years on

October marks the 10 year anniversary of auto-enrolment being introduced in the UK, designed to improve pension saving and put people on track for a better retirement.

More than 10 million people have been auto-enrolled since its introduction, with participation in workplace pensions increasing from 55% in 2012 to 88% in 2021.

However, a massive 46% of UK consumers are still not confident that they’ll have enough for a comfortable retirement, according to new research from Barnett Waddingham. This rises to 51% for women, 53% for 35-54 year olds, and 68% for those with no pension other than the state pension.

This lack of confidence is not unfounded. According to our research, one in five (20%) Brits don’t have any private or workplace pensions – they will only receive a state pension. This rises to 26% for women, compared to 13% for men. 

Engagement with auto-enrolment

Of those eligible to be opted-in based on age (22 to 65), 20% aren’t paying into their DC pension at all. Of those entitled based on income – that is, in at least one job earning £10k a year – 11% have a DC pension which they’re not paying into. But even those paying into their pensions may not be doing enough, according to Mark Futcher, Head of DC pensions at BW.

"Of the 20 million people saving into a workplace pension, the vast majority aren’t saving enough. Savings rates have plateaued at the minimum. The Government had a ripe opportunity to include a 1% employee contribution every two or three years, which would have moved many people towards the recommended 12% saving rate. Instead, they failed to capitalise on the success; as the cost of living crisis worsens, it’s arguable they’ve missed their chance."

Auto-enrolment’s exclusions 

13% of working Brits are excluded from auto-enrolment altogether due to their income structure – 10% have one job which earns less than £6,240 a year (below the lower level of qualifying earnings - LEL), while 4% have multiple jobs all of which earn less than £6,240 a year. This is led by those in part time work (30%), but is still true of almost one in ten full time workers (9%). It rises to 18% of those aged 55+ (and still working). 

Those earning below the £10,000 auto-trigger, but above the LEL (£6,240), can opt-in to a workplace pension and receive the mandatory employer contribution. 14% of people are in this position. This is more true for men than women (15% vs 12%), and is truest for those aged 18-24, at 19% - 15% have one job earning £520-833 a month, while 3% have multiple jobs with at least one in that earnings category. 

70% of people who can opt in say they have done so, while 29% have not. That’s almost a third of people missing out on available employer contributions and tax relief. 

“The auto-enrolment legislation excludes a huge number of low earners, including almost one in ten full-time workers," said Futcher. "The Government has opted to keep the minimum earnings band at £10,000 a year, despite multiple calls to scrap it. The new Minister for Pensions must rethink this; if they don’t, it falls to employers to consider increasing remuneration to their staff to account for the lack of long-term savings."