‘End of the road for auto-enrolment’ – Private sector pension participation falls

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Fewer people in the private sector have been paying into their pension, with participation falling by one percent between 2019 and 2020. The new data also raised concerns about the continuing decline of self-employed pension savings and a participation gap among certain minority groups.

Ian Browne, pensions expert at Quilter gave his thoughts on the findings and stressed that pension auto-enrolment had had a hugely positive impact on participation in retirement saving since it was first introduced nine years ago.

He said: “Automatic Enrolment has been a resounding success since its introduction in 2012. The UK had woeful pension participation rates, as low as 40 percent in the private sector, which had a material impact on retirement outcomes for workers right across the UK. Since 2012, the private sector participation rate has more than doubled and now stands at 86 percent, meaning that over 14 million people in the private sector are contributing to a retirement fund.”

But with the latest numbers showing a fall in pension participation in the private sector, Mr Browne questions whether auto-enrolment has done as much as it can.

He said: “However, for the first time since 2012, growth in private sector pension participation has stalled. The numbers saving into a pension in the private sector has decreased by one percent. A modest reduction, but a reduction nonetheless and one that DWP and the Government will need to play close attention to.

“Is this simply a product of the pandemic? Or have we reached the end of the road for AE’s success? If the latter is correct then new policy is required to catch others and to boost the numbers once again.”

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He advised that by implementing a more flexible system for opting in to auto-enrolment, more participation may be encouraged.

Mr Browne said: “The Government could boost the numbers by implementing a partial opt-in AE system. The current system requires individuals to fully opt in or fully opt out, with little flexibility in-between. If someone needs the extra money, a partial system would allow them to opt-out of their own contributions, while still receiving the employer contributions. This would enable individuals to continue saving and benefit from employer contributions even if short-term income constraints mean they are unable to make personal contributions, a handy feature in the current economic climate.”

A particularly worrying area within the statistics concerns the self-employed, as the group has seen a long-term decline in participation from 21 percent between 2009 and 2010 to just 16 percent from 2019 to 2020.

On the lack of self-employed participation, Mr Browne said: “Alarm bells will also be ringing in the Government over the continuation of the long-term decline in self-employed pension savings. Since 2009, the number of self-employed workers saving into a pension has fallen from 21 percent to just 16 percent in 2020. Due to the nature of the pandemic, many self-employed workers will have suffered a severe financial shock and will be reticent to save into a pension at the moment. But clearly, this trend extends way beyond Covid, so the government needs to look at new policy measures urgently to help prompt this group of workers to save for retirement.”

Mr Browne also said that more needs to be done to increase employee participation among ethnic groups, as the gap between White and Pakistani and Bangladeshi groups continues, currently a 20-percentage point gap.

“One cause for concern is the big gap in private sector pension participation between the employees of large companies, and the employees of small and micro businesses. There’s also a significant ethnicity pension gap, with only 65 percent of Pakistani and Bangladeshi employees saving for a pension. These groups should be carefully considered by DWP.”

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