The survey found that unless the Government’s 2017 review of AE reduces the earnings trigger – the point below which employees are ineligible for auto-enrolment (currently £10,000pa) and somehow extends the scheme to cover the rapidly rising numbers of self-employed, around 12 million private sector workers will be outside the AE tent by mid-2018.
Whilst AE has been a success to date in adding some 7.2 million employees to the ranks of workplace pensions, it is estimated that, based on ONS figures, over 40% of employees of micro employers – around 840,000 firms with fewer than 5 employees – earn below £10,000pa. These employees are not eligible to be auto-enrolled into workplace pensions and with the survey finding employee opt outs rising to over 21% of eligible jobholders in smaller firms, it seems likely that upwards of 60% of employees amongst the vast majority of firms left to stage may miss out on joining the ranks of pension savers.
Commenting on the survey findings, Bob Scott, Chairman of the Association of Consulting Actuaries (ACA) said: “Many have commented to date about the generally low level of pension contributions being saved into most AE schemes, and rightly so. Our survey underscores that in smaller firms the problem is heightened, with those joining AE generally at or near the minimum levels of total contributions, which amount to less than 2% of earnings at present.
“Worse still, the survey findings point to both higher levels of opt outs than has been the case when larger employers enrolled employees, alongside huge numbers excluded from AE on income grounds alone. This is beginning to be reflected in the monthly TPR figures, with the latest months’ showing those ineligible for AE rising towards 40%.
“In our survey report, we make a number of recommendations that we hope the Government will consider in its 2017 AE review, including reducing the earnings trigger to boost the numbers eligible for AE, and measures to simplify and add greater flexibility – particularly when minimum contributions are set to rise in 2018 and 2019. We also believe that the Government, given the uncertain economic backcloth, may need to plan ahead and build in both tax and NI adjustments into future spending plans so as to encourage greater private pension saving in the years ahead.
“The Government needs to be absolutely straight with the public. The new State pension, whether triple or double locked, will not provide anything like an adequate retirement income for the vast majority of people. Without private pension savings, very many people will continue to rely on other State benefits in retirement, the level of which and their persistency being very uncertain. And, whilst we would like to see greater flexibility as to when the State pension can be drawn, the expectation must be that the State Pension Age will move upwards in the years ahead, doubly underscoring the need for greater private savings to be encouraged at all income levels by public policy.”
There were a number of other worrying survey findings, including:
Only 15% of small firms support increasing minimum AE contributions after these reach 8% of qualifying earnings in April 2019. This finding and others detailed in the report prompted a number of ACA recommendations for the future (see pages 8 – 9 of the report, featured at the end of this release).
Only 32% of small firms support lowering the earnings trigger to below £10,000pa to extend eligibility to join AE.
26% of the smallest firms (those with fewer than 10 employees) said AE will impact on employment levels.
Bob Scott added: “The survey results make it absolutely clear that the pensions industry and Government must increase their efforts to convince the public of the essential need to save more for their later years. This may involve many people having to review their spending patterns and life-style choices. Whilst we sympathise with the financial pressures on businesses of all sizes in supporting higher pension contributions, employers too need to help more, particularly if the Government and Regulator contribute respectively through fiscal measures and applying genuine simplicity. What as a society we cannot afford to do is to accept that millions of private sector employees are totally financially unprepared for their retirement years.”
Some 1.3 million firms with fewer than 250 employees, alongside the self-employed, employ around 60% of the UK private sector workforce and make up just under half of the UK’s private sector turnover. Over 900,000 of these small firms still have to auto-enrol their employees into an AE scheme. At present, only a minority of small firms offer a pension scheme and recent estimates suggest fewer than ½ million of the UK’s 4.8 million self-employed now save in a private pension.
The ACA survey was conducted over the summer of 2016 and received responses from 455 smaller firms. The survey report, The Missing Millions, is available at www.aca.org.uk
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