Auto-enrolment was introduced in 2012 to ensure all employers offered a workplace pension. Starting with the largest firms, companies have rolled out schemes giving all employees earning more than £10,000 a workplace pension. If you earn £5,876 annually you can request to join the scheme. More than one million companies have now rolled out a pension scheme since auto-enrolment was introduced.
On launch, it was estimated that 11 million individuals would be auto-enrolled as a result of the initiative, resulting in £17 billion of extra saving a year in workplace pensions by 2020.
Auto-enrolment thus far has been deemed a success, with minimal opt-out rates. The Department for Work & Pensions found in a December 2017 review that the biggest increases in participation have been amongst younger people, those with lower earnings and those working for smaller employers. But this is anticipated to change once the minimum contribution rises.
“Auto-enrolment has so far boosted numbers saving, but two huge obstacles are looming in the form of contribution hikes in 2018 and 2019,” warned Nathan Long of Hargreaves Lansdown.
“The £18 that someone with full-time average earnings is currently required to spend on pensions each month will jump by £74 to £92 come 2019. All of a sudden this is no longer spare change.”
Elliott Silk, head of commercial at Sanlam UK agreed, saying auto-enrolment legislation was doing its job and getting more of the nation saving towards retirement, but a big hurdle was “just around the corner”.
“It is vital that with the first increase in contributions coming up in April that employers do all they can to avoid a drop-off in membership,” he said.