More than 10 million people will be newly saving or saving more as a result of auto-enrolment by 2020, according to the latest figures from the Department of Work and Pensions (DWP).
The government department has also calculated some £17bn more a year will be saved into workplace pensions by auto-enrolment-inspired savers by 2019/20.
The breakdown of the £17bn figure expects £6.4bn to be contributed by employers, £8bn by employees and £2.5bn of tax relief on employee contributions.
The latest figures are based on the most recent ‘DWPmodelling’ analysis of the 2015 annual survey of hours and earnings, and evidence from the employers’ pension provision survey 2015.
“What auto-enrolment has achieved so far has been a huge success,” said Aegon head of pensions Kate Smith. “However, government needs to lead the way in talking up the value of pension saving. With the pending increase to employee and employer contribution rates in April 2018, we could be at risk of undoing a lot of good work.”
Smith added that, if the industry and government do not provide sufficient support ahead of the increased contribution rates in 2018, it could “rock the auto-enrolment boat” and put people off workplace pension saving. Steps need to be taken to prevent this from happening, she added.
Minister for pensions Richard Harrington (pictured) said: “My mission is to ensure everyone has the opportunity to benefit from a workplace pension. For some people, this may be the first time they have saved in this way, and we must help them build a big enough savings pot so they can enjoy a comfortable retirement.”
Reform around the corner?
In anticipation of Chancellor of the Exchequer Philip Hammond’s first Autumn Statement on 23 November, there has been speculation the government is considering removing tax relief from pensions.
Hargreaves Lansdown wrote to the government proposing a ‘100 minus age’ system in favour of scrapping the current tax-relief system. The firm’s proposals would see the government provide a percentage bonus on top of pension contributions equal to 100 minus the age of the contributor. As an example, a 25-year-old would receive a 75% top-up on their contributions while a 50-year-old would receive a 50% bonus.
Commenting on both the latest auto-enrolment figures and John Cridland’s interim report on the state pension age, however, Royal London pensions development manager Jamie Clark suggested the government should avoid changes to pension tax-relief until 2020.
“Statistics issued yesterday highlighted that more people could live well into their 100’s – potentially until 115,” he said. “To help achieve appropriate levels of savings to provide a sustainable income over what could be 40 or 50 years or more, we would caution against any major changes to pension tax relief, at least until the end of this Parliament.”
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