Who is missing out on saving?

Automatic enrolment (AE) has successfully brought millions of workers into long-term saving. Opt-out rates have been lower than expected and we have found that employers and the Industry have adapted well to the change. However, the retirement gap remains with 44% of people in the UK not saving adequately for retirement and nearly a fifth saving nothing at all.

Despite this fundamental step change there are pockets of people that are left behind; primarily the self-employed, lower paid and part-time workers.

One in five of the 4.6 million self-employed in the UK do not have any plans for retirement other than the State Pension. What more can we do to support this group?

A wider review of how this growing part of the workforce can be supported and taxed should drive any potential solution. The Government has recently stopped, or at least delayed, plans to increase National Insurance Contributions (NICs) paid by the self-employed. Perhaps in the future, any increase in NICs could be paid into a pension – or even better, as we learn from the success of automatic enrolment, maybe they should be automatically diverted there.

Lower paid and part-time workers can also be missed by automatic enrolment if they earn less than £10,000 in a single employment. The £10k earnings trigger has not increased since the introduction of automatic enrolment, so as wages rise it gradually becomes more inclusive, nonetheless many people still miss out.

The threshold does not accommodate more flexible working lives with no mechanism to recognise total earnings across multiple jobs. This is increasingly important as people look for more agile ways to balance work and personal lives. Interestingly, our research shows that women are twice as likely as men to have two jobs and earning less than £10,000 in each. This threshold likely contributes to the gender savings gap, which has widened in recent years.

At Scottish Widows, we would like to see the earnings triggers significantly reduced or scrapped altogether. We would also like the Government’s automatic enrolment review to consider changing other limits; including age ranges and definitions for qualifying workers.

In the early days of automatic enrolment, there were good reasons for limiting its scope to support successful implementation. Perhaps there is still an argument for waiting until minimum contributions are at 8% before making significant changes. However, now we have a solid foundation, where for millions of workers saving is established as a natural part of employment. That’s a great platform on which to build and try new ways to reach those currently missing out.

Bringing more low-paid workers into pension saving should also encourage us to think about how we approach tax relief. Pension scheme providers either use a net pay arrangement, or they can apply relief at source. The latter allows every saver to receive tax relief at the basic rate, even if they don’t pay income tax, effectively increasing the contribution in a transparent way. Tax relief is not only a great incentive to save; it provides a big boost to the savings of the low-paid too.

Underpinning all of this is the need for better education and engagement. Our industry must support people to think about the future they want and how savings will help them to achieve this. We know that even the future minimum contributions of 8% will not be enough to help most people achieve a comfortable retirement. Our challenge as an industry, and for my team at Scottish Widows, is to keep innovating and testing new ways to communicate and connect effectively with our customers and the wider public to support them all on this journey.

You can hear more on the topic of automatic enrolment - how it can be made to work for more people and how we can better sell the benefits of saving during the breakout sessions at the ABI's Long Term Savings Conference taking place on 4 July 2017.


Deane, J., (2016) Self Employment Review https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/529702/ind-16-2-self-employment-review.pdf

Scottish Widows, (2016a) Retirement Report http://www.scottishwidows.co.uk/extranet/working/about/reports/pension-report

Scottish Widows, (2016b) Women and Pensions Report http://www.scottishwidows.co.uk/extranet/Working/about/reports/womens-pension-report

Last updated 30/05/2017