Where next for pensions auto-enrolment?

Since its introduction just over a decade ago, automatic enrolment has undoubtedly transformed retirement savings in the UK, allowing millions of workers to effortlessly save for their future.  Some 22.6 million people now contribute to a workplace pension, an increase from 47 per cent prior to auto enrolment’s inception in 2012. That is a significant achievement.

However, there is also a growing body of research that shows many are not saving enough for retirement.  Modelling from Phoenix Insights, Phoenix Group’s longevity think-tank, shows that 17 million people (55 per cent of DC savers) are not on track to achieve the minimum retirement living standard income recommended by the PLSA. We need to acknowledge – as they have in Australia – that the current contribution level of 8 per cent is simply insufficient to adequately provide for individuals in retirement. 

Contributing more through employer and employee contributions will make all the difference to ensure people can have a comfortable income in retirement, but of course these are challenging times for both savers and businesses. High inflation, energy costs and a tight labour market are just some of the many headwinds the UK economy faces. So while now is not the time to increase contributions, as we enter the second decade of automatic enrolment, we need to ask how and when contributions might increase to ensure better retirement outcomes.

In November last year, Phoenix Group published a report with WPI Economics setting out how policy-makers might set about doing this, when the economic conditions are right. Developed with a range of stakeholders from across the economy, it sets out a framework for how automatic enrolment contributions may rise in the future and, crucially, what economic criteria should be met so as not to place too great a strain on business and the individuals. It also establishes criteria to pause increases should the economy be stalling.

The report also recommends a statutory requirement on government to support workplace pensions adequacy. As with the state pension age, the requirement is intended to ensure government considers whether current contribution levels are adequate and, if an increase is required, to assess whether economic conditions support an increase in contribution levels.

If we continue on the current trajectory, the repercussions will be severe. The strain on social support systems and the potential increase in poverty among those in retirement are issues that we can’t ignore. And the benefits will be wider than just better outcomes for individuals. As policy-makers look to get greater pension fund investment in UK companies and infrastructure, increasing private pension contributions could have huge benefits for the wider economy.

As we approach a general election, it is imperative we start to address the problem of insufficient pension savings. The urgent need to increase contribution levels is evident, and the future implications of inaction are too significant to overlook. Exploring practical solutions and taking steps towards increasing contributions, we can ensure a brighter and more secure retirement for all individuals and benefit the wider economy.