Department for Work and Pensions (DWP) data may have identified an increase in workplace pension participation but more needs to be done to address the exclusion of the self-employed and low-earners, say pension experts.
According to the latest figures on workplace pension participation and savings trends of eligible savers, auto-enrolment saw almost four-fifths (79%) of employees saving in a workplace scheme in 2015.
The data also found increased participation from ‘non-eligible’ low earners, with those earning less than £10,000 contributing 24% in 2014/15, rising from 16% in 2012/13.
AJ Bell senior analyst Tom Selby acknowledged auto-enrolment had helped in reversing the “worrying decline” in the number of people saving into pensions but added: “Harnessing inertia to get people saving into a pension is only the start.”
With a government review scheduled for 2017, he added: “Policymakers will undoubtedly be wary of ratcheting up pension contributions at a time of huge economic uncertainty as the UK prepares to leave the European Union. After all, for the economy to grow, the government needs consumers spending as well as saving.”
In considering a potential solution to opt-out concerns, Selby suggested ‘auto-escalation’, going on: “Employee contributions automatically increase when they receive a pay rise – this has been successful in the US and merits serious consideration as a way of nudging people to save more.”
Another area likely to be addressed, Selby said, involved those who are currently excluded from auto-enrolment, including the self-employed and those earning less than £10,000.
Acknowledging the potential challenges involved in expanding auto-enrolment, however, he said: “For the self-employed, the question is who will provide the ‘employer’ contribution? Equally, it is questionable whether private pension saving should be a priority for someone earning below £10,000.”
‘Reboot system’
Old Mutual Wealth pension expert Jon Greer also recognised the success of auto-enrolment but added: “The data shows how the system needs to be rebooted to keep up with employment trends.” Similarly, he highlighted the need to expand auto-enrolment out to the self-employed and lower earners.
Noting fewer than one in five of self-employed partake in pension saving, Greer said: “With the number of self-employed people growing significantly in recent years, fuelling the economy through a challenging period, it is absolutely critical this large and vital part of the workforce are not forgotten by the pensions system.”
Adding that the inclusion of the self-employed needs to be easy to implement, he suggested facilitating pension saving through national insurance.
As for low earners, Greer said: “The £10,000 threshold should be brought down or abolished. There has been a big focus on the terms of employment for those on low pay, and part-time or even zero-hours contracts, but they are still second-class citizens when it comes to pensions.”
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