Auto-enrolment reform: If not now, when?

Auto-enrolment is hailed as a success by government and industry on a seemingly weekly basis. The back-slapping takes place with some merit. Workplace pension participation continues to hit highs that were unimaginable in the dark days before its arrival in 2012. 

It has helped to engage women with retirement saving, too. Published in December 2017, the report pointed out how it had boosted workplace pension participation rates among women from 40 per cent of eligible women in 2012 to 73 per cent in 2016.

This compared with a rise from 43 per cent among men to 73 per cent over the same period.

Study after study shows that the current system penalises women when it comes to their pensions

The review, however, found that the saving levels provided through auto-enrolment were not meeting the expectations of most working-age people, particularly for part-time workers and the young.

It said that the government wanted “to help lower earners build their resilience for retirement, to support individuals, predominantly women, in multiple part-time jobs, and to simplify automatic enrolment for employers”.

System penalises women

Current auto-enrolment rules compel employers to enrol into a pension scheme any staff aged between 22 up to the state pension age, who earn more than £10,000 a year. 

There is also a £6,240 lower earnings limit, which is the threshold that allows employees to qualify for certain state benefits, including the basic state pension.

Given that the first £6,240 of annual salary, or £120 a week, is not therefore pensionable, the lowest paid have the smallest proportion of their wage paid into their pension.

The DWP’s 2017 review proposed auto-enrolling workers from the age of 18. It also suggested abolishing the low-earnings threshold, with these changes to be implemented by the mid-2020s.

These changes would, in theory, help women, who make up a disproportionate part of the UK’s part-time workforce and find themselves falling behind their male counterparts on retirement saving, in part owing to the need to fulfil caring duties.

Study after study shows that the current system penalises women when it comes to their pensions.

A study of 1,356 older workers aged 45 and over published in May, which was sponsored by the Financial Services Compensation Scheme, laid bare the scale of the pensions crisis facing women. 

Half of older females are forced to keep working beyond retirement, while nearly three-quarters of women said going part-time or taking a career break was the reason why they reduced their pension payments.

Sixty-four per cent have previously stopped their pension payments completely due to these factors. 

Three-quarters of UK part-time workers are women, while women earn on average 35 per cent less than men during their careers, according to Scottish Widows.

The Prospect trade union estimated that the UK gender pensions gap in the 2019-20 period stood at 37.9 per cent. 

If not now, when?

On May 10, the government once again failed to do anything about this, opting not to include any of the 2017 review’s proposals in the Queen’s Speech.

In the lead-up to the announcement, Pensions Expert was told by one well-placed industry source that the Treasury was currently not on board with the reforms to auto-enrolment. When this was put to the Treasury, it pointed Pensions Expert in the direction of Number 10.

This source said that conversations with the DWP had softened expectations over any changes being on the horizon.

This is clearly a challenging time to impose any pension reforms that might tease further spending out of employers on their staff. 

Higher employer contributions risk strangling wage growth, while inflation surges and economic growth forecasts remain grim.

Compelling employees who choose to remain under the scope of auto-enrolment to increase their contributions during a cost of living crisis would, meanwhile, squeeze workers and represent a potentially reckless play with voters.

There is no need to impose these changes during these difficult times, however. Auto-enrolment reforms would not have kicked in this week. After all, the 2017 review proposed implementing them in the mid-2020s.

But it seems there is never a good time for a pensions bill.

In the five years since the auto-enrolment review was published, we have had just over two years of minority government, Brexit drama, the coronavirus pandemic, and now a cost of living crisis and the threat of recession.

Unless the government expects the economy and the cost of living to remain dire until the mid-2020s, and is admitting that it is powerless to do anything about this, there is scant reason to not start on these reforms as soon as possible.

If not now, when?

In an announcement that would have played to the prime minister’s showmanship tendencies, such a bill would have taken place 10 years on from the introduction of auto-enrolment and five years since a report about maintaining its momentum.

Maybe the government can find the space beyond pensions legislation to offset the impact of caring, career breaks and salary gaps on women’s savings.

Until then, its commitment to kicking the can down the road on auto-enrolment reform will continue to fail women when it comes to their retirements. 

Maybe it is time to pause the back-slapping.