What employers can do to boost workplace pension saving
October marked the 10th anniversary of auto-enrolment pensions being introduced in the UK, designed to improve pension saving and put people on track for a better retirement.
Since its introduction, more than 10 million people have been auto-enrolled, increasing participation in workplace pensions from 55% in 2012 to 88% in 2021.
However, this doesn’t tell the whole story. Even with these increases, new research from Barnett Waddingham reveals that one in five (20%) Brits don’t have any private or workplace pensions. This rises to 26% of women, compared with 13% of men.
Confidence is also suffering. Some 46% of UK consumers are still not confident that they’ll have enough money for a comfortable retirement. This rises to 51% of women, 53% of 35-54 year olds and 68% of those with no pension other than the state pension.
So, what is holding back auto-enrolment pensions from being as successful as they could be? Mark Futcher, partner and head of DC at Barnett Waddingham, says there are two core problems: “Not enough people saving and people not saving enough.”
Engagement with auto-enrolment
Of those eligible to be opted-in based on age (22 to 65), 20% aren’t paying into their DC pension at all. Of those entitled based on income – that is, in at least one job earning £10k a year – 11% have a DC pension which they’re not paying into. But even those paying into their pensions may not be doing enough.
"Of the 20 million people saving into a workplace pension, most aren’t saving enough. Savings rates have plateaued at the minimum. The government had a ripe opportunity to include a 1% employee contribution every two or three years, which would have moved many people towards the recommended 12% saving rate.
“Instead, they failed to capitalise on the success. As the cost-of-living crisis worsens, it’s arguable they’ve missed their chance,” adds Futcher.
Who is missing out?
Income-based exclusions account for 13% of working Brits missing out on auto-enrolment altogether. This comprises:
• 10% of workers having one job which earns less than £6,240 a year (below the lower earnings limit (LEL))
• 4% having multiple jobs, all of which earn less than £6,240 a year. This is led by those in partime work (30%), but is still true of almost one in 10 full time workers (9%). It rises to 18% of those aged 55+ (and still working).
• The 14% of UK workers who earn below the £10,000 auto-trigger, but above the LEL (£6,240), can opt-in to a workplace pension and receive the mandatory employer contribution.
Women are in a worse position
Once again, more women than men find themselves in this position (15% vs 12%), and those aged 18-24, at 19% – 15% have one job earning £520-£833 a month, while 3% have multiple jobs with at least one in that earnings category.
While 70% of people who can opt in say they have done so, 29% have not. That’s almost a third of people missing out on available employer contributions and tax relief.
“The auto-enrolment legislation excludes a huge number of low earners, including almost one in 10 full-time workers," said Futcher.
"The government has opted to keep the minimum earnings band at £10,000 a year, despite multiple calls to scrap it. The new minister for pensions must rethink this; if they don’t, it falls to employers to consider increasing remuneration to their staff to account for the lack of long-term savings.”
Both of these points offer their own issues and the nuances of each employer’s situation may complicate things further. But there are steps those working in reward and benefits can take to help improve the situation for their workplace.
Look at the numbers
Firstly, take stock of your situation through data analysis. Your data is the DNA of your business, so analysing it can spotlight some of the issues your employees are facing. For example, do you have pay gaps that need addressing?
Pair this with advice from your pension advisors about auto-enrolment, and you may find your business presents particular barriers that need to be addressed with bespoke solutions.
Then, create a clear and consistent communication plan, that aims to both explain the importance of auto-enrolment pensions, while also inviting those with questions to come forward.
In partnership with Barnett Waddingham
Everything we stand for at Barnett Waddingham is embedded in our promise – to do the right thing. We’ve applied this meaningful principle across all aspects of our business with continued success.
