We’re now more than two years into auto enrolment and it’s tempting to think the hard work has been done. Certainly all the signs so far are positive.
Around 43,000 employers have staged and there are now around 5 million workers newly saving in workplace pensions. Opt out rates are impressively low – barely above 10 per cent nationwide and 8 per cent at NEST – and our recent NEST insight research suggests the policy is increasingly popular. On the face of it, auto enrolment has been resoundingly successful.
Some people worry that the policy unfairly uses people’s inertia against them – that they are unaware of what’s happening and could realise at a later date and wish they had opted out. But in fact our research shows that most people know they’ve been automatically enrolled and are grateful to have this complex decision out of their hands. At the same time auto enrolment is having a normative effect: people have rated retirement saving increasingly highly on their list of spending priorities since the policy was introduced.
So with this level of success - why would anyone use the blunt tool of compulsion? There is no evidence yet to suggest there is a need for it. Of course it’s important to look ahead to ensure we’re doing all we can to improve the retirement prospects of millions of people. Pension saving, however, isn’t a tanker that can be turned quickly.
We are now just two years into the implementation of auto enrolment and the decades-long decline in private pension saving is only just beginning to move into reverse. The policy consensus to get here took some time to build and was hard won. Part of what enabled that consensus was that the government set minimum contributions at a level that is affordable for both employees and employers while the policy beds in. Early indicators of auto enrolment are looking very promising, but there is a risk that we could scare the horses if we move too quickly.
Contributions may well need to rise in future in order for people to have the sort of retirement they want. There is a range of options which could be examined to make that a reality and I look forward to NEST being part of those discussions. At the same time those of us involved in delivering auto enrolment day to day cannot afford to let it distract us from the significant challenge we still face in the next few years.
There are 45,000 small and micro employers reaching their staging date this year and over a million next year and beyond. So although we’re half way through the staging timetable, less than four per cent of all employers affected by auto enrolment have actually staged so far. We in the pensions industry, with the support of the thousands of advisory, payroll and accountancy firms, are now adapting and preparing for the remaining 96 per cent.
These employers are not pensions experts. Promisingly, our research shows they are positive about the idea of helping their workers save for retirement. However, in order to keep auto enrolment cost effective and simple they are going to need our help to administer and comply with their duties. Getting successfully through to the end of the staging profile may seem unexciting but we owe it to these millions of employers and their workers not to lose focus.
Tim Jones is CEO of NEST.
Tim will be speaking on a plenary panel session entitled 'What next for pensions savings?' at the ABI Retirement Conference on 25 February 2015.