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10 years of Auto-enrolment: the good, the bad and the opportunity

With an enrolment rate of 88 per cent compared to 55 per cent in 2012, I don’t think anyone could argue that auto-enrolment hasn’t been a resounding success. 
But before we raise our glasses in triumph the top-level stats don’t tell the whole story; the devil is in the detail as they say. For instance, if we look more closely at the 88 per cent figure – it only relates to eligible employees, there are still millions of people who – through no fault of their own – aren’t eligible and are being left out of pensions.
Whilst the Government has committed to reduce the minimum age, this won’t solve the whole problem. There are still those under the earnings trigger who miss out on valuable employer contributions, many of whom are part time and 70 per cent of these part time workers are women. Not great for closing the gender pension gap.
But are pensions the only answer? We’ve recently launched an innovative new approach for the University of Lincoln which auto enrolls (through contractual enrolment) working students who fall outside of the auto-enrolment regulations, into a workplace savings scheme at the same contribution levels as the pension scheme. People are still supported to save, and they don’t lose out on employer contributions. It’s a great solution, especially for younger employees who might prefer to have accessible savings over retirement savings for now.
But people not being auto enrolled isn’t the only problem. There’s also the issue of contribution levels. It’s one challenge getting people into pensions but it’s another getting them to pay enough. 10 years on, average contribution levels are still hovering around the minimum requirement of 5 per cent. Up until now I think we would all agree that this is totally down to lack of engagement – we can turn the tables on inertia by automatically getting people into pensions, but the same tactic doesn’t work for getting people engaged! Afterall, inertia is the antithesis of engagement.
If lack of engagement wasn’t challenging enough, we now have the added issue of the cost-of-living crisis. How do you tell people who are struggling with everyday costs to pay more into their pension? It just isn’t a feasible ask. In fact, our latest research shows that nearly half of all employers (45 per cent) are seeing employees opting to leave the pension scheme due to the cost-of-living crisis and if the latest projection for inflation bears out, then there’s a fear that this becomes a more common occurrence. 
We can’t let the cost-of-living crisis undo all the good work that’s been done in getting people to save over the past 10 years. But maybe the answer lies outside of pensions? For employees, there is a two-prong challenge at the moment: being able to cover costs today, whilst also building an accessible financial buffer for the future. If we can help employees with both, wouldn’t that reduce the likelihood of them having to resort to reducing or even ceasing pension contributions?
With the challenge of covering today’s costs, we need to resort to old but good tools. For instance, salary sacrifice is still a great concept but, amazingly, relatively still unknown. Our recent research found that 63 per cent of people aren’t even aware of it and of those who are in a defined contribution scheme, only 34 per cent use it. We’ve calculated that collectively pension savers are losing out on nearly £2bn a year!
And for the much-needed financial buffer to help people weather today’s storm, and be better prepared for the next, we need some out of the box thinking. For instance, pension redirect – allowing people to redirect some of their pension contributions over and above auto-enrolment minimums into a workplace savings scheme. It keeps people saving for retirement but also allows them to build up accessible savings – it’s a much-needed balance. And if there’s no headroom for this, employers could still set up voluntary savings.
Auto-enrolment is a success but there’s still work to be done to meet the challenges of a changing world. And it can’t be just about pensions.
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