Articles - The Seventh Anniversary of the Revolution

Where were you in October 2012? I hope you can remember. I know I can. It was a revolutionary moment in the history of this country. I was in a proposition team, wrestling with the problem of how we could support employers to communicate details of the revolution to millions of employees. It was the moment auto-enrolment (AE) began.

 By Dale Critchley, Policy Manager, Aviva

 Companies up and down the land were compelled to introduce a workplace pension scheme and every member of staff (over 22 and earning more than £8,105 a year (£10,000 now)) were automatically signed up.

 Over the past seven years it has largely been a roaring success. The numbers speak for themselves.

 Over 10 million people have been introduced to pension saving since AE began. The latest figures show that 76% of all UK employees are now members of a workplace pension scheme. That is up from just 51% in 2008. If we look at eligible workers, 90% are in a workplace pension scheme.

 A colleague has a really good way of explaining the impact AE has made on employers: “Before AE just 1 in 10 employers offered a workplace pension – now it’s 10 in 10’. I think that’s a pretty neat way to summarise it.

 That’s the success story, and it should be celebrated. AE has done more for helping people prepare financially for their future than just about any government policy before it – excluding the introduction of the state pension.

 But, let’s not get too carried away. There’s still work to be done.

 Imagine that instead of workplace pensions, in 2012 we had all set out to build a race car. Over the past seven years we’ve developed a good engine, decent tyres, a robust suspension kit and we’ve got the car out on the track.

 But there’s a few problems. The first is we can’t get enough fuel into it. Everything is in place, but unless the driver takes it upon themselves to top up their tank, they’ll end up pushing it over the line.

 The analogy is obvious (I hope). Our AE retirement vehicle has a default tank that’s too small. Contributions need to increase, or people have to accept that they won’t have a comfortable journey in retirement.

 In April this year, minimum contributions increased to 8%, split between the employee and the employer. But even a 22-year-old earning £25k, who joined their workplace pension this April and who saves for 46 years until state retirement age could end up with a pension pot of only £105k*. It’s not to be sniffed at, but it’s difficult to see how that will provide a decent level of retirement income. (The value of your pension can go down as well as up. You could get back less than you paid in.)

 The other problem is that our AE vehicle isn’t a “Ford” - a car for everyone. There are those who are excluded from AE, most notably the self-employed. The latest figures say there are almost five million self-employed workers in the UK now, up from 3.3 million in 2001. But of 35-54-year-olds, almost half have no pension wealth at all.

 The young and those with multiple jobs are disadvantaged too. There are plans in place to reduce the minimum age for AE to 18 and remove the contribution threshold which will help, and hopefully we’ll see more concrete proposals soon.

 But more needs to be done and we’d like to see AE minimum contributions rise to around 12.5% during the next decade. We’d also like a plan to be drawn up to encourage the self-employed to join a pension scheme.

 But let’s not overlook the phenomenal success of AE. It’s revolutionised the pension landscape. And it’s taken people who were sleep walking towards a retirement entirely dependent on state pension and put them in the driving seat.

 Happy Birthday auto-enrolment.

 *22-year-old joined an AE pension scheme in April 2019 paying 8% minimum contributions. They pay in for 46 years until their state pension age of 68. Annual management charge of 0.75%, investment returns of 2.5%, all calculations exclude inflation. The value of your pension can go down as well as up. You could get back less than you paid in.

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