Government publishes ambitious plans to give millions a more financially secure retirement

The review of automatic enrolment includes major recommendations that will set millions of people on the path to a more financially secure retirement

The review, which looks at past, present and future workplace pension saving, confirms that automatic enrolment’s harnessing of inertia has worked, and that the financial behaviour of millions of people has changed, so that they now view pensions as a normal part of their pay package.

Secretary of State for Work and Pensions, David Gauke, said:

"This government has rebuilt the UK’s savings culture. For an entire generation of people, workplace pension saving is the new normal. And my mission now is to make sure the next generation of younger workers have the same opportunities.

"We are committed to enabling more people to save while they are working, so that they can enjoy greater financial security when they retire.

"We know the world of work is changing, so it is only right that pension saving does too. This ambitious package will see more people than ever before helped onto the path towards building a secure retirement."

The review’s recommendations, which will now be progressed and legislated for where necessary, will see:

• automatic enrolment duties continuing to apply to all employers, regardless of sector and size

• young people, from 18 years old, benefiting from automatic enrolment, introducing 900,000 young people into saving an additional £800 million through a workplace pension

• workplace pension contributions calculated from the first pound earned, rather than from a lower earnings limit – this will bring an extra £2.6 billion into pension saving, improving incentives for people in multiple jobs to opt-in, and simplifying the way employers assess their workforces and calculate contributions

• the earnings trigger remaining at £10,000 for 2018/19, subject to annual reviews

• contribution levels reviewed after the implementation of the 8% contribution rate in 2019

• the government testing a series of ‘targeted interventions’ – including through opportunities to work with organisations who act as ‘touch points’ for the 4.8 million self-employed people, such as banks and those who contract labour – to explore how technology can be used to increase their pension saving

Ruston Smith, Trustee Director at Peoples’ Pension who led on the theme of engagement, said:

"Automatic enrolment has been a game changer – helping bring millions more people into pension saving. As we look to the future there’s clearly a challenge for both the pensions industry and for government to help and encourage people to engage with their retirement savings and to plan ahead. Creating a much simpler language and conversation around retirement savings is just one important step we need to take."

Jamie Jenkins, Head of Pensions Strategy at Standard Life, who led on the theme of coverage, said:

"The measures we are announcing today will ensure that as many people as possible have the opportunity to start to build up pension savings. Since this policy was introduced it has enjoyed huge success and it is right this is extended to include young workers, and those who might not have a standard employment set-up."

Chris Curry, Director at Pensions Policy Institute, who led on the theme of contributions, said:

"We all want to be able to enjoy a comfortable retirement and to maintain our standard of living. However the review has shown that one of our greatest challenges remains that many people are still actually under-saving. By removing the lower earnings limit we’ll be enabling people to contribute towards their pension savings from the first pound of savings."

Since its launch in 2012, automatic enrolment has transformed the way people save for retirement, with more than 9 million people now enrolled into a workplace pension, with a large number of new savers under the age of 30. However the review estimates there are still around 12 million individuals under-saving for their retirement, representing 38% of the working age population. Of this 12 million, some 6 million are ‘mild under-savers’.

The government is committed to normalising pension saving among workers; helping lower earners build financial resilience for retirement; to supporting people, predominantly women, in multiple part-time jobs, and to simplifying automatic enrolment for employers. Today’s announcement will deliver an additional £3.8 billion of pension contributions, taking the total to £24 billion per annum.

We will be working towards introducing these reforms in the mid-2020s in partnership with employers and the pensions industry, learning from the contribution increases in April 2018 and April 2019. This will ensure that businesses and savers have time to plan for the changes and that we continue to build on the foundation already in place in an effective way.

Read – Automatic enrolment review 2017: Maintaining the momentum