The Association of British Insurers (ABI) has published a 35-page report called Automatic Enrolment: What will the next decade bring? to shine a spotlight on the 10-year-old automatic enrolment (AE) pensions policy and what the trade body would like to see by 2032.
“AE has met the targets set by the Pensions Commission on participation rates, but voluntary pension saving rates, a crucial assumption of the Commission in how savers would meet replacement rates, have not materialised,” noted the ABI in the report. “Over 10.6 million eligible employees from two million employers have been enrolled into a workplace pension, including many more women, lower earners, and younger people building an asset for their future.
“However, the average total contributions to defined contribution pensions are still too low, and dwarfed by private defined benefit pension schemes by a factor of five to one.”
The association went on to state: “There is no roadmap for the next chapter of AE, despite five years having passed since its last significant review. This report suggests such a plan, and what changes we think need to happen to build on the success of the policy.”
The ABI’s recommendations include a gradual increase in the minimum contribution rates, and the flexibility to be able to opt down during challenging times.
“By 2032,” it declared, “we want to see contributions rise to 12% (from 8%), with either an opt-down or opt-up mechanism. This should be split evenly between employees and employers. Pension saving should start from the age of 18, and be based on the first pound a person earns.
“The employer and employee link creates strong incentives and should remain. A whole of market solution for small pots should also be implemented in this time, to tackle the current trajectory of 22 million pots by the end of the next decade.”
Currently, all employers are required to automatically enrol employees who are over the age of 22 and earn at least £10,000 a year into a workplace pension scheme.
“Automatic enrolment has transformed workplace pension savings in this country,” commented ABI director general Hannah Gurga. “But the challenge remains to ensure people are saving enough for their retirement.
“For the next 10 years, we need a detailed plan for getting to higher contributions. Our report… sets out the industry’s thoughts on how to achieve this – we stand ready to work with the government to ensure the next decade of automatic enrolment builds on the proud record of its first 10 years.”
