Between October 2012 and February 2018, the Government phased in new regulation called Automatic Enrolment, making it compulsory for every employee meeting the eligibility criteria – aged between 22 and state pension age and earning at least £10000 – to be automatically enrolled into a workplace pension by their respective employer.
As life expectancy continues to increase, the state benefit system must accommodate a continually increasing number of people. Bearing this in mind, this legislation was implemented to “nudge” more people towards building up retirement benefits. So far it has been a remarkable success as the proportion of eligible staff saving into a workplace pension has increased from 55% in 2012 to 87% in 2018, and the total annual amount saved by eligible savers increased from £73.6 billion to £90.4 billion in that same timeframe. Although it is mandatory that employees be enrolled by their employer, it is not mandatory that they remain so, as there is an option to personally opt out. However, three years after opting out, staff who had done so are automatically re-enrolled, prompting them to reconsider their initial decision.
Implemented indiscriminately nationwide, this legislative change has had a profound impact on one demographic in particular – youth. In the private sector in 2012, only 24% of eligible staff between the ages of 22-29 were enrolled in a workplace pension. By 2018, that figure had risen to 84%. The benefits of beginning to save for retirement as early as possible cannot be understated, with the Director of Automatic Enrolment at TPR (The Pensions Regulator) Darren Ryder asserting that “it’s terrific that the chance to save has been opened up to millions more people who may not have otherwise set up a pension. In years to come, young people in their twenties who started saving today will reap the reward of a retirement they can look forward to.” Gender parity has also been established. Before 2012, proportionally more males were enrolled in workplace pensions, however by 2018, both eligible male and female enrolment stood at 85%.
Two current issues face the continued success of Auto Enrolment – a rise in wilful non-compliance, and an increase of minimum contribution prompting a potential rise in opt outs. Royal London warns of a “worrying decline” in pension duty awareness, with a decrease from 98% to 94% in medium sized employers, and from 88% to 82% in micro employers. To combat this, TPR use a data led approach to target employers who they “strongly suspect” are breaking the law. Between April 2018 and March 2019, TPR used its formal powers 128,807 times, compared with 102,497 times the previous year. In April 2019, minimum contribution rose from 5% to 8%. Research conducted by TPR when indications of this change were made public suggest that only 2% of staff in micro, small and medium sized business would opt out, however it is too early to draw any definitive conclusions.
Automatic Enrolment has granted individuals across all demographics the opportunity to build up retirement benefits that they might not otherwise have signed up to contribute to. It may seem a lifetime away for a student or young professional. However, starting to save as soon as possible for retirement benefits could be one of the best decisions you ever make.