Pensions - Articles - Auto enrolment six years on and six years ahead


October 2012 marked the start of the government’s flagship auto-enrolment policy, designed to reverse the decline in pension saving. Six years on, almost 10 million employees have been auto-enrolled into a workplace pension scheme.

 Employers were staged into auto-enrolment over almost 5 years, with the UK’s largest employers going first. Those employees fortunate enough to have been auto-enrolled from the beginning might have saved in a workplace pension for six years now. 

 Over the last six years, the total minimum contribution, shared between the employee and the employer, has risen from 2% to 5% and will increase to 8% in April 2019.

 Aegon’s analysis found that an employee earning the UK’s average income, who was auto-enrolled in October 2012, and contributed the minimum amount over the last six years, will have already generated a pension pot of £3,353, including £1,099 of their own pension contributions. As well as their own contributions, this total comprises of employer contributions, government tax relief and the amount accrued through investment returns.

 As minimum contribution levels are set to increase from 5% to 8% in April 2019, that same pension fund, with minimum contributions, will increase to £16,251 over the next six years to October 2024, including £6,395 of their own pension contributions. The hope, however, is that people and their employees contribute more than just the minimum and keep on saving.

 Kate Smith, Head of Pensions at Aegon, said: Six years on, auto-enrolment is delivering on its objective with more people saving into a workplace pensions than ever. Pension saving is fast becoming the social norm and auto-enrolment has been the catalyst for many to start saving for their financial future. What our figures show is that for those who have been saving since the outset of auto-enrolment, around two thirds of the value of the pension comes from employer contributions, tax relief or investment growth, highlighting the value of the scheme over simply putting more in cash savings. 

 “Few people have opted out of pension saving following the April increase in the minimum contribution, but we shouldn’t be resting on our laurels as the total amounts saved by those paying the minimum are relatively small. Although some employers are going the extra mile, far too many people and employers are simply paying the minimum pension contribution, and even when this increases to 8%, it’s not going to generate sufficient funds for most people to live on in later life.

 “People are living longer, taking gaps in their working lives and social care costs are falling at the feet of more retirees. The harsh reality is that people need to save around 12 to 15% of their earnings over their working like to cover all eventualities. If people, and their employers, choose to increase their contributions by even a small percentage each month, the long term investment returns will prove extremely beneficial.”
  

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