Articles - Auto-enrolment: The Past, Present and Future

Auto-enrolment, on the face of it at least, has been a huge success. Very few employees have chosen to opt out and, five years on from launch, we are seeing its impact. But where did it all start? Back in 2003, the Government had a problem. Defined Benefit pensions in the private sector were in sharp decline as many closed to new members.

 By Lydia Fearn, Head of DC at Redington
 The new Defined Contribution schemes saw very low levels of contributions, although in fact many employees weren’t saving into a pension scheme at all. All of this meant that the welfare state would have to step in at some point which was likely to be unsustainable – people needed to save more for their own futures.
 The Turner Commission report in 2005 had a dramatic effect on Government thinking, and from that the Auto-enrolment policy was born.
 So where are we today?
 The Department for Work and Pensions confirmed that the latest figures showed more than 8.5m people have been saving into a workplace pension scheme due to automatic enrolment.
 Also, according to research from Aegon, over the last five years, an employee earning the average salary and contributing the minimum 2% would have generated a pot of £2,440 . Over the next five years, as levels rise to 5% and then 8%, members will have built a pot of £11,430 .
 But, we know 8% isn’t going to be enough for most. Even with the state pension to fall back on, at current levels people are not going to be left with sufficient income to cover their retirement.
 So, how do we encourage more contributions?
 I think there are two key drivers to focus on. Using technology to make it as easy as possible to see, understand and save into a pension, and secondly creating a stronger emotional connection with later-life savings, like we do with our short-term savings.
 Technology as a driving force
 Technology, and the creation of apps, has exploded over the last few years. There are now over 2 million apps available, allowing people to translate everyday ambitions to (often) instant action and realisation.
 If we need to move money between accounts, check our bank balance, or buy a parking ticket, it can now all be done on the go via our smartphones.
 Understanding and realising our long-term savings objectives should also be this easy. The technology exists and it’s time for the industry to embrace it and make engaging with pensions an easier and more enjoyable experience.
 Technology could give members the power to make payments straight into their account, find out how much they have saved, or calculate where they are in terms of reaching their retirement goals. This knowledge can not only directly translate to positive actions but will undoubtedly also make them feel more connected to their pension savings.
 Creating an emotional connection
 However, before they become interested in taking actions, we need people to even think about looking at their pension savings. In order to do this, they need to create an emotional connection to their savings. To know that it belongs to them and they have control over it.
 Part of bridging this connection is ensuring that the benefits of long-term saving are as tangible as those of short-term spending.
 There are some simple messages we can focus on using the EAST framework:
 • Saving into your pension is EASY – it’s taken directly from your monthly pay
 • Pensions are ATTRACTIVE – as well as your own contributions you are receiving ‘free’ money from your employer and the government
 • Pensions are SOCIAL – millions of people are saving through auto-enrolment
 • Pensions are TIMELY – the sooner you start to save the longer you have to increase the amount you will have access to in later life.
 Auto-enrolment has already shown itself to be a huge change for good, but it’s far from the finished article. More can and must be done if we’re going to help solve the UK savings crisis and deliver financial security for members.

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