Latest Government figures released today show private sector pension participation has risen dramatically since auto-enrolment was introduced in 2012 - https://www.gov.uk/government/statistics/workplace-pension-participation-and-saving-trends-2006-to-2016
Opt-out rates have been low (around 10%) in initial phase of reforms
Huge challenge as contributions set to rise in higher inflation environment
Tom Selby, senior analyst at AJ Bell, comments:
“The initial phase of automatic enrolment was about boosting the number of people saving something for retirement. This has largely been successful, with over 11 million private sector employees now saving in a workplace pension. This was no mean feat and reversed a severe downward trend in workplace saving between 2006 and 2012.
“But increasing participation is only part of the challenge, and the next stage – raising total minimum contributions to 8% and potentially beyond – will arguably be the biggest challenge.
“Indeed, even transitioning from the current minimum employee contribution of 1% to 4% in 2019 won’t be easy, particularly if inflation continues to outpace average earnings growth. For many people struggling to make ends meet, sacrificing 4% of their salary to save for retirement might be a burden they can’t stomach.
“As policymakers look to take auto-enrolment to its next stage, a balance will need to be struck between increasing contributions and coverage of the programme, and limiting the risk of mass opt-outs. The Conservative Government has already committed to expanding the programme to self-employed people, presumably through the tax system, while there is a debate to be had about whether the qualifying earnings bands, auto-enrolment earnings trigger and age thresholds remain appropriate.
“Beyond this it seems sensible now to seriously consider whether policies like Save More Tomorrow – where contributions automatically ratchet up as someone receives a pay rise – could be implemented in the UK. This could improve contribution rates without the pain of reducing monthly take-home pay.”