Watchdog hails success of auto-enrolment pensions

Photograph: Alamy

Regulators and financial experts are hailing a rare public policy success after figures on Britain’s “auto-enrolment” scheme revealed 10 million more people are now saving, with record amounts going into pensions.

British workers saved £90.4bn into their pension schemes in 2018, according to the Pensions Regulator – £7bn more than the year before. Behind the surge in saving is auto-enrolment, the scheme set up by the government in 2012 to make sure everyone, whether they work for a supermarket or a corner shop, has a private pension to add to their state pension.

In its first year, around 1 million workers from big companies were brought into the scheme, and there were fears that as smaller workplaces were drawn into the net, more and more people would opt out.

But the pensions regulator said the numbers enrolled rose to 6.2 million in 2016 and had now hit 10 million.

“Since 2012 there has been a significant increase of 8 million to 18.7 million eligible employees participating in a workplace pension (87%) in 2018, showing the positive impact of the workplace pension reforms to date.”

Less than half of private sector workers had a pension in 2012, but the figure has now reached 85%.

Critics had warned that forcing small employers such as hairdressing salons to offer a pension would create unnecessary red tape and bureaucracy. But the Pensions Regulator said that between 2016 and 2018 there was a surge in small and “micro” employers joining the scheme, with 1.5 million employers now fully enrolled.

Auto-enrolment has had a dramatic impact on the participation of ethnic minorities in pension saving. Before auto-enrolment, just 36% of Pakistani and Bangladeshi workers had any form of private pension, but this has now jumped to 60%.

Young adults are also big beneficiaries. The regulator said 84% of 22- to 29-year-olds were in a pension scheme in 2018, compared with 24% in 2012.

Since April this year, the amount deducted from salaries into the pensions has risen from 2% to 5%, with employers paying a further 3%. But the pensions regulator said there was little early evidence of a significant increase in opt-outs.

There is one group that has been left in the cold by auto-enrolment – the self-employed, who are not required to join the scheme, and whose numbers have increased sharply in recent years.

Tom Selby, a pensions expert at AJ Bell, said: “While the government is justified to some extent in lauding the success of automatic enrolment, the reforms are by no means a silver bullet to solve the UK’s retirement problems.

“The fact over 10 million people, many of whom are young and women, have been automatically enrolled into a pension since 2012 is to be celebrated, but average contributions remain painfully low.”

However, Tom McPhail, of Hargreaves Lansdown, cautioned against pushing up contribution rates too soon. “Politicians shouldn’t rush to ratchet up the minimum contributions. The current auto-enrolment rates are a good starting point and given other pressing financial concerns, such as problem debt and lack of cash reserves for many households, a rush to mandate higher pension savings rates now could be damaging to household financial resilience.”