Workplace pension auto-enrolment has been a success despite many doubters at the time of its launch in 2012.
Nevertheless, there are now signs that participation may have stalled while the clamour is rising from those who say the level set is woefully inadequate and people are simply not saving enough to provide a decent income in old age.
Recent figures from the Department of Work and Pensions showed the number of workers in the private sector auto-enrolled into a pension scheme had decreased for the first time since its introduction – 14.3 million private sector eligible employees were contributing to a workplace pension scheme in 2020, compared with 14.4 million in the previous year.
The drop was not enough to move the participation rate in the private sector. That remained at 86 per cent, but below the 94 per cent registered in the public realm.
Annual savings from eligible individuals reached £105.9 billion, a jump of £5.5 billion. Pension contribution rates dipped in the first half in the face of coronavirus, but recovered in the second period. However, the rebound was driven by public sector employees, who saw their savings increase by £5.7 billion, while there was a plunge in contributions of around £200 million in the private sector.
Ian Browne, pensions expert at Quilter, told FTAdviser the fall was modest but “a reduction nonetheless and one that DWP and the government will need to pay close attention to”.
He went on: “Is this simply a product of the pandemic? Or have we reached the end of the road for auto-enrolment’s success? If the latter is correct then new policy is required to catch others and to boost the numbers once again.”
Helen Morrissey, of Hargreaves Lansdown, added: “While people were tempted to decrease, or even stop pension contributions in the early days of the pandemic, it is positive to see this has not led to long term damage with employee contributions recovering towards the end of the year.
“There is always a concern that once contributions are reduced, or stopped, they are not taken up again.”
Instead, contribution levels had remained “resilient”.
Nevertheless, there are other worrying trends too.
The DWP figures show both a relatively low participation of below 65 per cent for Pakistani and Bangladeshi employees and a long-term decline in participation by the self-employed from 21 per cent in 2009-10 to 16 per cent in 2019-20.
There are also plenty of voices saying that auto-enrolment simply does not go far enough – the minimum contribution is eight per cent of salary with employers paying at least three per cent and the employee the remainder.
Paul Leandro, of Barnett Waddingham, told Investment & Pensions Europe that many were “falling woefully short of paying enough”.
He said: “In short, the pension system needs a drastic overhaul. We need to introduce better tools such as higher default contribution rates, and better use of a wide range of investment assets.”
Speaking to Express.co.uk, Claire Trott, at St James’s Place, commented: “It is great that auto-enrolment has brought so many people into the savings world of pensions, but the basic levels are just not enough to build up a decent retirement income.”
Problem is there are so many competing demands on a person’s income – paying back student loans, life and other insurances, getting married, trying to get on the housing ladder, and rising tax levels, which are forecast to increase to 35 per cent of GDP by 2025–26, higher than at any time since the 1980s.
Pension saving is undoubtedly too low, but persuading people to do more remains an on-going challenge.