Auto-enrolment has been a success since it was introduced 10 years ago. But more must be done to help people save for a financially secure and fulfilling retirement. Inequalities and challenges persist that need to be addressed in the next 10 years.

Let’s start with the positive. Auto-enrolment (AE) has revolutionised pension saving for millions of people in the UK.

In April 2021, the UK workplace pension participation rate was at 79 per cent – compared to 47 per cent in 2012.

Meanwhile, private sector pension participation among people aged 22-29 was 84 per cent in 2020 – up from 24 per cent in 2012.

Gaps in coverage

Gaps remain in today’s AE system, however, and many people still face the prospect of a substantial drop in their standard of living when they reach retirement.

In April 2021, only one-in-five employees aged 16–21 years had a pension. And far fewer low-paid private sector full-time employees participate in a workplace pension.

There is also relatively low participation among certain ethnic minority groups, such as Pakistani and Bangladeshi employees.

Meanwhile, in 2018 only a third as many self-employed people contributed to a private pension as did so in 1998.

And worryingly, evidence indicates the gender pension gap may have increased during the pandemic.

The PLSA Retirement Living Standards estimate an individual will need a pot of £270,000 to live a “moderate” income in retirement (£20,800 net per year, not including housing costs). The current structure of AE means a lot of people will have little hope of attaining this.

Inertia vs. engagement

AE has normalised regular pension saving largely through inertia. Thankfully, over the first decade of AE, opt-out rates have been around one-in-ten – throughout staging and contribution increases.

Inertia has its downsides, though, with many people insufficiently engaged with their long-term savings. For instance, more than two-thirds of 50–64-year-olds don’t know how much they’ll need for retirement, according to the report A Guiding Hand: Improving access to pensions advice and guidance, produced by the Social Market Foundation and sponsored by Phoenix Group, Standard Life’s parent company.

Additionally, this research indicated that what many people think they need in terms of size of pension pot upon retirement, is significantly less with what they will actually need to reach their desired retirement income. We estimate the average pension pot under-provision stands at £240,000.

These challenges are compounded by the nature of the support on offer. Just a fifth of 50–64 year olds have spoken to a financial adviser about their pension, found the aforementioned report.

We therefore need to find ways to harness inertia, such as through auto- escalation of contributions; while also finding new ways to encourage people to think more about their long-term savings.

Time for reform

At Standard Life, we’d like to see the government make the following three changes to the AE scheme:

1. Reduce the eligibility age from 22 to 18. The age threshold discriminates against those who start working at 18. It also ignores an opportunity to embed a savings habit early and generally raise awareness of long-term financial planning among younger people.

2. Remove the lower earnings limit – currently £6,240. This would lead to even higher levels of participation, boost retirement funds, and greatly increase savings levels over a generation.

3. Abolish the earnings trigger of £10,000. This penalises multiple job holders and the low paid by removing them from pensions saving. These potential savers are disproportionately female and live in historically disadvantaged regions of the UK.

The government is committed to implementing these measures by the mid- 2020s, so the policy-making process needs to begin now to ensure this is achieved.

Engagement season

The upcoming launch of Pensions Engagement Season represents a great opportunity to get people thinking about their savings, and we’re excited to be supporting the initiative. One of our main focuses is to ensure the campaign does not take a one-size-fits- all approach to engagement, but instead recognises the increasingly diverse nature of the UK workforce.

AE has made a hugely positive impact. With the right reforms, we are hopeful it can help even more people to achieve financially secure and fulfilling lives in retirement.