It’s good but it ain’t enough: Auto-enrolment numbers are a “tale of two halves”
Auto-enrolment of workplace pensions is failing key sections of the workforce and needs to be "re-booted", according to industry experts.
The department for work and pensions today released its annual report on the country's participation in the initiative, which was an attempt to "address the decline in private pension saving and to help normalise saving".
Although 15.1m people had now signed up to a workplace pension by the end of 2015, concerns remain for the longer term trend, outline by Old Mutual's pension expert Jon Greer:
The data published today shows the strength of auto-enrolment, but also shows how the system needs to be re-booted to keep up with employment trends.
There are two key groups being left-out and the government desperately needs to assist the self-employed and those on low-pay in its upcoming review of auto-enrolment.
Eligible employees up but self-employed down
Self-employment participation is declining despite the government initiative (Source: Department for work and pensions)
Meanwhile, the UK's largest insurer, Aviva urged the government to take action to mitigate a savings timebomb.
It said the saving per eligible person had fallen to a record low of £5,419. The insurer called the figures a "tale of two halves".
Read more: More, more, more: Brits urged to put ramp-up savings
Alistair McQueen, a savings and retirement manager at Aviva said:
2016 has been a year of surprises. While much about the future may remain uncertain it can be stated with confidence that failing to address the growing retirement savings gap in 2017 will only result in a bigger gap in the years to come.
One of the fundamental problems according to Aviva is minimum savings targets are far too low and the firm took the opportunity to re-trumpet calls for a savings target of 12.5 per cent of income.
Minimum levels under auto-enrolment stand at one per cent of income plus a one per cent contribution by employers.
While these will ratchet-up in the future, the first step-up isn't up 2018 with the highest committed target scheduled to be introduced in 2019 of five per cent (employee) plus three per cent (employer) contributions.
Read more: Pensions watchdog in spat over "heavy-handed" auto-enrolment claims
"We’re moving in the right direction, but the picture isn’t entirely rosy. Too many people are still committing just the minimum contribution rate of one per cent, matched by a one per cent employer contribution, which simply won’t build up a pension pot large enough to provide an adequate income," said Aegon's head of pensions Kate Smith.
Pensions minister, Richard Harrington said: “It is clear automatic enrolment is playing a key role in shaping the retirement landscape for generations to come. However I want to build on this success and will be looking at how we can get even more people saving, and saving more."