AE review should silence doom-mongers

The doom-mongers who predicted that employers would not comply and employees would opt out in their droves were simply wrong. In fact, we should start by commending employers who, in the main, have done a sterling job of getting people saving for their retirement.

It was right to lower the age at which people are auto-enrolled as this reflects more accurately the number of people starting work earlier and the focus on apprenticeships

The review comes at a crucial time, as the roll-out nears completion and the task moves from getting everyone in to getting contributions up. We will move from a total of 2 per cent of band earnings today to 5 per cent in April 2018, and further to 8 per cent in April 2019. That is the next big test of this policy.

Engagement is key to future success

The review team sought to build on this success in three key areas; coverage, contributions and consumer engagement.

Coverage is important as there are millions of people who are not benefiting. Contributions matter because we need to ensure people are saving adequately.

Finally, engagement – I would argue – is the most important aspect over the long-term, particularly as people have to prepare for the decisions they themselves will need to make in retirement.

In light of this, the review has put forward a package of measures, including:

• The starting age for automatic enrolment will be lowered from 22 to 18. This will bring an estimated 900,000 additional people into saving, and increase the number of years that people build their retirement pot.

• The lower earnings limit will be removed, meaning contributions will be calculated from the first pound of wages. This will make it much more attractive for people on lower incomes or in multiple jobs to save, and increase the amount being saved for millions of people who are already contributing.

• A number of trials will be carried out to understand better what will be most effective in helping the 4.8m self-employed people to save.

No single solution for self-employed

We decided it was right to lower the age at which people are auto-enrolled, as this reflects more accurately the number of people starting work earlier and the focus on apprenticeships, giving them a chance to start building a savings pot from when they begin earning. This will also simplify the assessment process for many employers.

Removing the lower earnings limit is perhaps one of the most significant changes, and one that will make the biggest difference to those on the lowest incomes. It will also put paid to the rightful challenge that ‘8 per cent is not really 8 per cent’. Once this change is made, it will be.

One of the stark realisations I had from my time on the review is the diversity of the self-employed population; everything from the so-called ‘gig-worker’ to the wealthy business owner.

It was clear from a very early stage that a single solution is unlikely to work for everyone, so we will do further work on this point; work that will recognise the many good proposals put forward during the review.

We need time to monitor progress

Recognising the magnitude of these changes and the additional costs for employers and employees, the government’s ambition is to implement these changes to the auto-enrolment framework by the mid-2020s.

This will also give us a chance to embed and evaluate the success of the 2018 and 2019 phasing increases, before making any further changes to the framework.

In totality, the package is expected to deliver an additional £3.8bn of pension contributions and bring nearly 1m additional people into the scope. This is before any success with the self-employed trials.

Meantime, the doom-mongers will be making their predictions again as we approach the April 2018 increases. I am more interested in what the auto-enrolled have to say.

Nine million people can’t be wrong.

Jamie Jenkins is head of pensions strategy at insurer Standard Life. He led the auto-enrolment review on the theme of coverage.