Pension savings still 'insufficient' despite Auto-enrolment

14 - 02 - 2014

Concerns have been raised that auto-enrolment pension savings are still insufficient.


Automatic enrolment into pensions started in October 2012. The new scheme is intended to supplement the current state pension and prevent a further decline in workers’ pension provision.


With Britons living on average three times longer than they did 10 years ago, it is hoped that automatic enrolment system will help to resolve the problem of pensioner poverty.


Nearly 2.9 million people have now been signed up under the scheme, some of whom will not have saved for a pension previously. It is estimated that 9 million workers will eventually be auto-enrolled.


But some say that contributions from employers are too small and that only the minimum possible level is being contributed by between 66% and 90% of employers under the scheme.


Tom McPhail, pensions expert at Hargreaves Lansdown, said that is it ‘only a start’.


"It is understandable that employers are just starting off with the minimum of contributions because their pension bill is going up. However, between them and their employees we need to get to a point where more money is going in, otherwise these employees are going to be disappointed when they do get to retirement."


Will Aitken, a senior consultant at Towers Watson, said: "It is important to understand that the contributions required by law were only ever supposed to be a minimum; they are not the government's suggestion of the 'right' amount to save."


The government is encouraging savers to start as early as possible. There are fears that many will still not have enough in their pension pot once they reach retirement age.


The facts on auto-enrolment




Under the new scheme, workers in the UK who are over 22 years old and under the state pension age, earning more than £9,440 per year and not already signed up to a company pension scheme will see a portion of their income automatically diverted to save for their retirement.


Employees who do not wish to be enrolled may opt out of the scheme by obtaining an opt-out form from their pension provider and submitting the form within a month. If an employee takes longer than one month to submit the form, they will build up a small pension fund, which will be untouched until retirement.




Auto-enrolled workers will either join a company’s pension scheme or a group scheme that employers can adopt, such as the National Employment Savings Trust (NEST).


The scheme will begin with employees contributing 0.8% of their earnings, employers paying in the equivalent of 1% of a worker’s earnings and the government adding 0.02% through tax relief. 


From October 2018 contributions will go up to a minimum of 4% from employees, 3% from employers and 1% through tax relief. There are fears that this will still be insufficient.


For example, from October 2018 an employee earning £20,000 annually will see £96.24 going into their pension fund every month. 




The recruitment process, which began in October 2012 with firms employing 120,000 or more employees, is being phased in over six years. Small businesses with 58 or fewer employees are not expected to take part in the scheme until at least January 2015.




Although self-employed professionals are exempt from automatic enrolment, it is important to note that if you employ staff – even if you are a site engineer with just one full-time secretary – you will eventually be required by law to enrol them.


If you are a self-employed individual with questions or concerns about how the new pension scheme might affect you, please do not hesitate to contact us on 01244 625 500 or by requesting a call back.










Foremans LLP Umberlla
Foremans LLP