28 June 2022
If you are writing on new data released from the DWP today:
- Workplace pension participation and savings trends
- Employers’ Pension Provision Survey
- Planning and Preparing for Later Life
Please find commentary below from David Gibb, chartered financial planner from Quilter:
The impact of Automatic Enrolment on workplace pension participation
"According to government data out this morning, the transformational impact of Automatic Enrolment (AE) looks like it has started to wane as the levelling off in participation rates we saw for the first-time last year continues. The DWP also released the findings of its Employer Pension Provision survey today, illustrating that employers are at odds with each other on the eligibility criteria and contributions rates for AE should be expanded.
"The survey revealed that 68% of employers agreed with reducing the age at which people are auto-enrolled into pensions from 22 to 18 years, while 17% disagreed. Similarly, under half of employers (43%) agreed pension contributions should be calculated from the first pound earned rather than today’s ‘lower earnings limit’, while 37% disagreed. These reforms were part of the government’s 2017 review of auto-enrolment, however it is as yet unclear when and how they will be implemented and it is worrying that there are such huge divides amongst employers.
"The policy has been a huge success as when AE was introduced in 2012, around five out of ten people had a workplace pension compared to nearly eight out of ten UK employees (79%) today. However, the government have had a hard time getting that figure much higher in recent years."
Automatic Enrolment during the cost of living crisis
"The idea of abolishing the lower earnings limit completely could be a hard message during a cost of living crisis. Although the actual pounds and pence difference in people’s pockets would be relatively modest, making this tweak when people are already financially struggling may prove unpopular. Automatic Enrolment relies on inertia and ideally you don’t want to force people to make the decision between income today and income in old age at a time like this.
"With people’s budgets stretched in a way that many have not experienced before, people naturally revert to ensuring that they have money to pay for the here and now rather than saving for the future. Those on lower incomes will disproportionately bear the brunt of the cost of living crisis and may choose to forgo pension payments as a result, where as those with more wealth may be able to continue to pay into their pension despite soaring living costs. These figures therefore may look very different next year. The cost of living crisis could prove to be AE’s biggest test to date."
Public vs private pension participation
"The ONS figures illustrate that there remains a persistent gap in workplace pension participation between the public and private sectors. While it has improved enormously since 2012, public sector employees were still significantly more likely (93%) to have a workplace pension than those in the private sector (86%). The gap between public and private sector participation has narrowed to seven percentage points in 2021 but 2020 was the first year the rate did not increase since 2013."
Self-employed pension participation
"We also must remember that AE only benefits the employed leaving the self-employed to fend for themselves. This group typically underfund their retirement pots and we need to urgently look at how we can improve saving amongst this group. According to these statistics the self-employed has seen an overall long-term decline in participation in pensions from 21% in 2009 to 2010 to 18% in 2020 to 2021.
"We desperately need to find a way to reach this group who are so often don’t save enough for retirement continue to fall outside of the scope of AE. Unfortunately, due to the nature of the pandemic and now the cost of living crisis, many self-employed people have suffered a significant financial shock and therefore are unlikely to be prioritising their pension provision at the moment. A solution to help prompt this group of workers to save for retirement needs to be looked at urgently as their financial needs differ to much of the rest of the working population."
How prepared 40-75s are for later life and retirement
"Elsewhere, separate worrying new statistics from the DWP paint a bleak picture of 40–75-year-olds’ preparedness for later life and their retirement. Nearly a quarter of those surveyed did not have a private pension and 16% had not yet started saving for retirement. The state pension can be a great additional source of income for retirees, but it is very difficult to have anything like the kind of retirement many aspire to on the state pension alone. We desperately need to get people to understand the benefits of taking control of their own pension provision earlier in life. These figures provide good evidence as to why a nudge towards getting financial guidance at the least needs to come when there is still plenty of time to build up a retirement pot.
"While Pension Freedoms has given people a much greater opportunity to use their retirement savings as they wish, these statistics also show that people are not seeking and being provided with enough help when it comes to accessing their retirement pots. Nearly three in ten people (29%) who had accessed a Defined Contribution pension had not received information, advice or guidance from their pension provider, Pension Wise or a financial adviser. What’s more is the reasoning for ripping cash lump sums from their pensions were often to cover short-term income needs including covering living costs or paying off debts and in this financial climate this is only set to get worse. We need to ensure that people from all walks of life are getting some form of help before they do irreversible damage to their retirement prospects."
