There's no doubt that auto enrolment has been a massive success, with just 10% of people auto enrolled choosing to opt out of their company pension scheme. However, in a recent speech at the annual Pensions and Lifetime Savings Association conference, the government's pensions minister Richard Harrington warned that auto enrolment is entering a new and challenging period.
Whilst auto enrolment's continuing success has been a good thing, Richard Harrington thinks that this cannot be taken for granted especially as we have yet to see auto escalation and an increase in contributions. Harrington does not foresee a disaster, but he does believe that there is no room for complacency.
"We have a big selling job to do. It is a simple but very complex task. Pensions do not mean much to people and they think of it as something completely different to a house or car. But we have to get people to understand it is their own money. We cannot take AE for granted. It is a brilliant product and I hope people a lot younger than me get interested in saving from a younger age."
Auto Escalation Rates
|Date ||Minimum Employer Contribution ||Total Minimum Contribution |
|Pre April 5 2018* ||1% ||2% (including 1% employee contribution) |
|April 6 2018-April 5 2019 ||2% ||5% (including 3% employee contribution) |
|April 6 2019 onwards ||3% ||8% (including 5% employee contribution) |
Another potential issue that could affect auto enrolment could be the introduction of the Lifetime ISA. Many industry professionals, including the former pensions minister Baroness Ros Altmann have warned that its introduction could see auto enrolment severely affected as younger people opt out of auto enrolment and instead place their money in a Lifetime ISA in the hope of saving up enough money for a deposit on a house.
The upcoming review of auto enrolment in 2017 offers an opportunity to review progress on auto enrolment and also to further understand the possible implications and effects of the implementation of the government's Lifetime ISA.
To learn more about the statutory auto enrolment review 2017 and what it will cover, click here.