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03 May 2018

Auto-enrolment reaches 1 million employer mark

More than one million UK employers are now meeting their automatic enrolment duties, according to figures from The Pensions Regulator.

It means that around 9.3 million people are saving into a workplace pension.

Under auto-enrolment, employers are required to enrol their eligible workers into a pension scheme and also pay money into the scheme. Workers are expected to contribute a minimum of 1% of their pay, which is matched by their employer to make a total contribution of at least 2% of qualifying earnings.

Contribution rates are set to increase to 5% in April 2018 and 8% in April 2019, and there are also plans to expand auto-enrolment to low earners and younger people in the mid-2020s.

Tom Selby, senior analyst at investment platform AJ Bell, said it´s clear that the early stages of auto-enrolment have been a success but warned of the challenges just around the corner.

“The vast majority of workers are staying in their pension scheme and research suggests the idea of saving for retirement is slowly becoming the norm across society,” he said.

“However, it is important policymakers and the wider industry don´t spend too long basking in the glory of this achievement. While getting over 9 million people saving for retirement is to be celebrated, the difficult bit – increasing minimum contributions at a time when wage growth lags inflation — is yet to come. Given that most agree the minimum contribution rate will need to rise beyond 8% in order to ensure people build up a decent retirement fund, focus should now shift to when and how this can be done.”

Selby said that in the next phase of the reforms, policymakers should consider allowing members to divert contributions to a scheme of their choosing — rather than being limited to the scheme chosen by their employer — to improve engagement.

“The all-or-nothing nature of opt-outs could also be reviewed as the government considers increasing contributions above 8%, with members potentially given the option to ‘opt down´ rather than opt-out altogether. Furthermore, initiatives such as ‘Save more tomorrow´, which has proved successful in the US, should also be considered,” he added.

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