Auto-enrolment in Scotland is now 5 years old and the headline figures make for impressive reading; more than 400,000 people have now auto-enrolled and are saving into a workplace pension. Figures released by the Department of Work and Pensions show that in some local authority areas those saving into a pension has actually doubled (1).
It was in October 2012 that automatic enrolment started. It represented a key part of the government strategy to get people saving for their retirement, in order to address the ever increasing number of years the average person is spending in retirement. And while most businesses are now taking part, auto-enrolment has not helped the self-employed or the increasing number of people working in the “gig” economy (3).
Auto-enrolment requires employers to automatically enrol their staff into a pension scheme. It started with staff working for the biggest businesses and in the five years since has rolled out to businesses of all sizes. The biggest change is that workers now have the right to opt out of the pension instead of needing to opt-in, which has led to a dramatics spike in these saving into a pension, with some businesses reporting 100% take-up (2).
The first year of the scheme saw a major marketing campaign around the “we’re all in” message and a large scale communication programme aimed at business owners which appear to have been extremely successful. After struggling to communicate the importance of pension savings for many years this new “nudge” approach of encouraging us to do the right think has certainly delivered the numbers. Another promotional campaign is due this year with the aim of getting employees to increase the amount they are saving (1).
This new push to increase contributions has led to concerns from the Federation of Small Businesses. Colin Borland commented: “The employer minimum contribution begins at 1%, but it rises steadily over the next couple of years till it gets to 3%, with 5% for the employee – making 8% of salary in total. That money has to be found from somewhere. And if you have a dozen staff or so, then it’s significant.”
“But I think the impact goes beyond simple cost. When we asked them, three in four of our businesses said auto-enrolment put an awful lot of pressure – in fact too much pressure – on businesses like theirs.” (2)
UK Minister for Pensions Richard Harrington said: “For most of us, if we want to continue to do the things we enjoy in retirement, a workplace or personal pension is something we’ll need. That’s why I am particularly pleased to see 400,000 people in Scotland saving for their retirement thanks to automatic enrolment.” (2)
The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.
The Financial Conduct Authority does not regulate on Auto Enrolment.