Auto-enrolment: Many Happy Returns?

Auto-enrolment recently celebrated its first birthday amidst largely celebratory comments from the industry.

Whilst it is too early to draw any strong conclusions about auto-enrolment, commentators have pointed to the lower than anticipated opt-out rates and the numbers of employees auto-enrolled into workplace pension schemes including NEST as a significant turning point in the UK pensions landscape.

Just last week Joanne Segars, CEO, National Association of Pension Funds (NAPF) at their annual conference commented that, "like the economy, we can see the green shoots of pensions recovery."

The Office for National Statistics (ONS) recently published figures showing active membership of occupational pension schemes fell by 400,00 in 2012.

Figures released by the Department for Work& Pensions (DWP) claim 1.6 million workers have auto-enrolled in the first year so auto-enrolment will clearly reverse the trend of falling pension scheme membership and this has to be welcomed.

However, increased membership, in isolation, will not deliver the holy grail of providing an adequate pension in retirement. Whilst auto-enrolment will undoubtedly provide increased membership it will not guarantee a level of pension sufficient for members to live on.

The level of contributions into auto-enrolment workplace schemes are clearly too low to provide meaningful levels of pension for many of those individuals who have auto-enrolled in the last 12 months. The minimum level of contributions currently is negligible and even at its height in 2018 will only reach a minimum level of 8%.

For workers earning a salary of £20,000 this would see a minimum contribution level of around £1154 p.a. With current levels of contribution rates how many of the 1.6 million people auto-enrolled last year are likely to build a pension pot that will deliver any meaningful level of pension?

Broadstone welcomes the first birthday of auto-enrolment but recognises  that, for the majority of current participants, the level of contributions is currently far too small to deliver enough happy returns for their retirement.

If you’d be interested in discussing how we can help you please contact me.

Nick Rudd
Corporate Benefits Director

Telephone:  +44 (0)20 7893 3456
Email:           contactus@broadstoneltd.co.uk