Three key issues identified in review of auto-enrolment

A review by the DWP into automatic enrolment has identified three key flaws with the system, with proposals to address these in order to build on the success of automatic enrolment in the future.

While there has been an increase in workplace pension participation among eligible employees from 55% in 2012, when automatic enrolment started, to 78% in 2016, three significant problems still remain:

• Based on current saving levels, there is a risk that a significant proportion of the working-age population will not meet their retirement expectations. The current structure of automatic enrolment means that there are also gaps in coverage, particularly for those in low paid part-time jobs and younger workers.
• A large proportion of the self-employed experience significant gaps in pension covers and other savings for retirement, yet they cannot be covered by the current design of automatic enrolment.
• Individuals do not actively engage with their pensions.

In response to the findings of the review, the government has set out two key proposals to achieve a more robust and inclusive savings culture, specifically to support younger generations and lower earners. The proposals, which the government would seek to implement in the mid-2020s following further consultation, are:

• to lower the minimum age for automatic enrolment from 22 to 18
• to calculate contributions based on earnings from the first pound earned, rather than from the lower earnings limit.

Whilst these changes would result in significantly increased costs for employers, they would also bring some much needed simplification to automatic enrolment.

The review also addresses other issues, including:

• Contribution levels – these will be reviewed after the implementation of the 8% contribution rate in 2019.
• Atypical workers – following the Taylor Review, the government will look at whether there is a need for greater clarity to ensure that atypical workers who are eligible are automatically enrolled.
• Engagement – the government will be seeking to improve engagement with pension savings in a number of ways, including by working with pension providers on pension dashboards to enable individuals to see all their pensions-related information in one place.

The full review can be found here.