Guy Opperman is Minister for Pensions and Financial Inclusion, and is MP for Hexham.
During my first few months as a minister in this department, I’ve been struck by how much we’ve achieved in recent years to help people think smarter about planning for their retirement and have the opportunity to build up their private pension savings.
But for me, it is automatic enrolment, the government’s flagship pension savings policy, which is fundamentally changing the way people save for the better. Launched in 2012, automatic enrolment requires employers to enrol all eligible staff – those aged between 22 and the state pension age, earning £10,000 per year or more and usually working in the UK – into a workplace pension.
As it reaches its five year anniversary, the transformation it is delivering in building a new pension savings culture across the country is an achievement of which we should be proud. Prior to its introduction, between 2003 and 2012, there was a downward trend in workplace pension participation, from 12.3 million eligible employees to a low of 10.7 million. But since its launch, nine million eligible employees have been automatically enrolled into a workplace pension and more than 800,000 employers have met their duties – helping those workers to look forward to a retirement with more savings than they otherwise would have had.
To put that into context, these new savers outnumber the combined populations of Scotland and Wales. By 2018, we expect that figure to rise to 10 million eligible employees newly saving or saving more – rivalling the combined populations of Scotland, Wales and Northern Ireland. Automatic enrolment continues to bring more women into pension saving too – in fact the number in the private sector without a workplace pension has halved. This goes alongside an increase in participation across a range of income groups, industries and regions. It is estimated that there will be an extra £17 billion of workplace pensions saving per year as a result of automatic enrolment by 2019/20.
Many younger people may not have had access to a workplace pension at all before, but are now building up retirement savings for their future. In fact, 22-29 year olds have the lowest opt-out rate of all age groups. This underlines how automatic enrolment is such a positive achievement and undoubtedly one of the great social reforms put into place alongside the three million more people in work, two million new apprenticeships and the introduction of the living wage since 2010.
This success owes a great deal to the determination and support of the pensions industry and employers. Reaching this position of consensus has taken a lot of hard work, whether it’s through the establishment of pension schemes or communicating these changes in the workplace.
The process began with large employers, many of which already provided some form of occupational pension. More recently, smaller businesses, which employ the great majority of our workforce, have begun to implement automatic enrolment for the first time. Just over 400,000 newly formed and existing employers must still enrol their staff into a workplace pension between now and March 2018, and we need to help them get this right. So it is essential that we continue to work with the Pensions Regulator to provide the necessary help and support so that these employers understand their responsibilities and how to implement automatic enrolment in the most straightforward way possible.
However, we also recognise that the long-term success of automatic enrolment can only be sustained if people continue to understand the benefits of saving. With planned increases in minimum contribution rates to 5 per cent in 2018 and 8 per cent in 2019, putting money aside every month needs to be the default choice for people in work and the right thing to do for your future self.
That’s why recent research highlighting how workplace pensions have become ‘the new normal’ is such gratifying news. Four in five of today’s eligible employees now see saving through a workplace pension as the normal thing to do if they work. The figures also show that 80 per cent of employees are positive about the benefits of being enrolled into a workplace pension, 83 per cent feel they know where to go to find out more information, and 79 per cent would welcome increasing their savings alongside employer contributions.
Business owners regularly tell us that staff who feel supported by their employer are engaged and committed. In the current climate of record employment and a competitive marketplace, what better way for business owners to demonstrate the value of their employees than by contributing towards their workplace pension?
But it is evident that our work is not yet complete. That’s why we are now carrying out a review of automatic enrolment, looking at ways in which we can improve and enhance pensions saving, and help today’s workers to enjoy a more secure later life. It is a key part of this Government’s commitment to build a better Britain.
Led by my department, the review is supported by an external advisory group, co-chaired by Chris Curry (Director of the Pensions Policy Institute), Jamie Jenkins (head of pensions strategy at Standard Life) and Ruston Smith (trustee director at Peoples’ Pension), to bring together experts from business and the pensions industry to help us look to the future.
The review is exploring three main themes: strengthening the evidence base around contribution levels; looking at how engagement can be improved so that employees have a stronger sense of ownership to save through their workplace pension; and examining the existing coverage of who is eligible for automatic enrolment. We intend to report to parliament before the end of 2017.
Given the millions of new savers, I also want to ensure the right help is available to support people to make the right choices, so their hard-earned savings work for them. Earlier this year the government introduced the Financial Guidance and Claims Bill, which will create a new, single financial guidance body, bringing together the existing services provided by Pension Wise, The Pension Advisory Service and Money Advice Service. This will provide a more joined-up service of free, high-quality, impartial information and guidance on pensions and money that will help savers to make well-informed financial decisions, whenever they need it.
In the meantime, we continue to work closely with the pensions industry, which is formed of hundreds of different providers, to help businesses understand how to set up and manage a workplace pension scheme using the range of products available, and what more industry can do to keep the huge increase in new customers informed.
Automatic enrolment is genuinely changing the retirement saving habits of a whole generation for the better. While nine million people enrolled is an impressive number, there is a story, a life and a family behind each one of those people who will reap the rewards of these changes and can look forward to a more secure retirement.
There’s clearly more to do to build on its success, but I am committed to automatic enrolment being a fundamental part of our aim to build a pensions system that is robust, fair and sustainable into the future.
This article is based on a chapter in the report ‘Saving for the future, published by Bright Blue and the Fabian Society, in partnership with The People’s Pension.