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Claims of auto-enrolment ‘success’ need to be tempered

24 February 2019

More than ten million people have now been automatically enrolled into a workplace pension scheme, the latest figures from The Pensions Regulator have shown. 

Kate Smith, head of pensions at Aegon, described the milestone for auto-enrolment as “an amazing success” and said it shows what can be achieved when there is “not only cross political party consensus but also support from advisers, employers and the pension and payroll providers.”

She commented: “Since its introduction in 2012, auto-enrolment has been beneficial in kick-starting retirement savings for many employees who are entitled to not only pension tax relief on their own personal contributions, but also importantly to an employer pension contribution.”

Tom Selby, senior analyst at AJ Bell, agreed auto-enrolment has been a success, but said much more needs to be done following the Secretary of State Amber Rudd’s declaration that the reforms have been a “soar away savings success.”

He commented: “Successive governments deserve credit for shepherding auto-enrolment to this historic landmark. But the reforms are neither complete nor working perfectly, so to declare them a ‘soar away success’ demonstrates a worrying hubris at the very highest levels of government.

“Not all workers are currently benefitting from auto-enrolment either. Those with earnings below £10,000 do not qualify for auto-enrolment while over a million low earners in ‘net pay’ schemes miss out on valuable tax relief.”

Selby also pointed to the growing number of self-employed workers who also remain outside of the auto-enrolment scope.

For those who do qualify for auto-enrolment, the minimum contribution will rise in April for the second year in a row from 5% to 8% meaning an individual paying in £40 a month from take-home pay will receive a £10 bonus from the government in tax relief and £30 from their employer bringing the total amount going into their pension to £80.

However, both Smith and Selby warned that while contributing 8% may seem significant, it will not be enough to warrant a comfortable retirement.

Smith said that just saving the minimum amount “will leave people with a shortfall in retirement and where people can they should look to save more than the minimum contribution levels.”

She explained: “This is just a start, there’s much more to do to encourage people to engage with their pension and make the appropriate levels of pension savings to fund the retirement they aspire to.”

Selby added: “Most people are still not saving enough and there remains no concrete plan to raise contributions beyond 8%.”

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