A recent Department for Work and Pensions (DWP) report (the Report) published on 26 October 2022 examined the role that its auto-enrolment policy has played in improving people's quality of life and showed that more than 10 million people have been auto-enrolled into a workplace pension scheme since the programme began in October 2012. 

The aim of the policy, requiring employees meeting the criteria for auto-enrolment to "opt out" rather than the previous "opt in" to a pension arrangement approach, was to increase the number of people making provision for retirement. Only four in 10 people had workplace savings when auto-enrolment was first brought in a decade ago, while the DWP states in the Report that overall participation of eligible employees now stands at around 88%. In this sense, the figures from the Report clearly suggest that the introduction of the UK's workplace pension has been an unrivalled success in helping to bridge the gap and encourage people, who would not normally have saved into a pension, to do so.

Just the beginning 

However, great success often brings its own challenges. For auto-enrolment, one of the biggest has concerned the contribution levels. Despite the minimum that can be paid into workplace pensions edging up over the years, it is still not enough to support many people's plans and lifestyles when the time comes for retirement.

The minimum total contribution is 8% of qualifying earnings (meaning the section of an employee's total earnings which is used to calculate pensions contributions), with employers paying at least 3% and employees, who benefit from tax relief on payments, making up the remaining 5%. Where basic pay (i.e. pay before bonuses, commission and overtime) is used to calculate contributions, the minimum total contribution is 9% of salary and employers must pay at least 4%. Unfortunately, it has yet to register for many employees that the amount saved via auto-enrolment alone is unlikely to be enough to support their retirement needs.

Reform on the horizon

The last 12 months have seen the Work and Pensions Committee (WPC) carry out an extensive inquiry into the success of the pension freedoms legislation, which came into force from April 2015, with the restrictions of auto-enrolment taking centre stage in the final part of the three-pronged investigation, which was focused on the challenges of saving for later life.

In its response to the third part of the WPC's freedoms inquiry earlier this year, the DWP said it wanted to engage further with the industry on approach and costing before committing to implementing changes it claims will come into effect during the "mid-2020s".

There have been repeated calls across the pensions industry for the implementation of changes, including:

• to lower the minimum auto-enrolment age from 22 to 18;
• to remove the £10,000 minimum earnings cap;
• for a gradual increase from 8% to 12% for minimum contributions; and
• to allow employees to "opt down" to below the minimum auto-enrolment contributions to account for people experiencing cost of living difficulties, while still retaining the requirement for matching employer contributions (currently, if an employee "opts down" below the employee minimum required under auto-enrolment legislation, there is no requirement for the employer to contribute at all). 

Implementing the above ideas will be no easy feat and not made any easier with the huge cost-of-living challenges which many are now facing. It should be no surprise given the current economic climate that many employees may currently be considering reducing their contribution levels or putting a stop to them altogether.

The government has, however, acknowledged that implementing some of these measures would "create a more robust and inclusive savings culture", adding that it would also "support younger generations to save for a more secure retirement".

The Pensions Regulator's (TPR) view on auto-enrolment

TPR has also weighed in on the 10-year anniversary and in this blog post, where it highlighted the need for more work to be done and confirmed plans for a new campaign warning employers that it will take action if it spots non-compliance with the regime.

The blog follows a warning given by TPR earlier in the year after it found a series of administrative errors in compliance inspections of more than 20 large employers across the UK, with a total of nearly 1.5 million employees. See our blog post here. 

Adequacy and provision of information

In our view, the focus for the next 10 years needs to be about adequacy. Employees are often not provided with enough information to understand what an adequate level of income in retirement is and how much they need to put aside on a regular basis in order to achieve it. The new Pensions Dashboard, designed to transform how savers access their pension facts and figures and to provide them in a single place online at any time they choose, will assist in this regard. The government, TPR and employers will all have a role in providing employees with the information they need to make the best decisions for their future.