Automatic Enrollment Boosts UK Pension Participation

TPR report finds the overall percentage of eligible employees saving into a workplace pension increased to 78% from 55%.

The UK’s The Pensions Regulator (TPR), in its fifth annual automatic enrollment commentary and analysis report, said that as of the end of March, there were approximately 7.7 million workers who had been enrolled in pensions offered by 500,000 employers.

“Saving for retirement is becoming the social norm and the success of automatic enrolment is playing a key role in this shift,” said Darren Ryder, TPR’s director of automatic enrollment. “Our figures show that new businesses will continue this trend as they ensure workers are enrolled into a workplace pension.”

The report found that the overall proportion of eligible employees saving into a workplace pension increased to 78% from 55% between the time automatic enrollment was introduced in October 2012, and April of 2016. It said that much of this growth came from increases in private sector saving, which has surged from 42% in 2012 to 73% in 2016. Meanwhile, public sector participation increased to 92% in 2016 from 88% in 2012. The annual total amount saved by eligible savers was £87.1 billion ($113.5 billion) in 2016, an increase of £3.8 billion on the total amount saved in 2015.

“The estimates demonstrate how automatic enrolment will continue to reverse the decline in workplace saving,” said the report.

The report also said that thousands of start-up businesses will have instant pension duties beginning in October, and more than half will need to enroll staff into a workplace pension. 

“Automatic enrolment is now simply part of running a business, and from October, as soon as employers take on staff for the first time, they will have duties,” said Ryder. “More than half of these new businesses will need to set up a pension scheme so that staff can begin saving.”

TPR said it will help steer hundreds of thousands of employers through their workplace pension duties. To help business advisers, TPR has also published expected numbers of employers due to carry out re-enrollment. Re-enrollment must be completed every three years.

Although TPR said compliance with the law remains high, it said it has had to confront non-compliance among employers. The Pensions Act 2004 gives TPR the power to publish information on cases where it has either exercised or considered exercising its authority. It said it does this “to increase transparency and understanding of our decisions and actions, and to deter unlawful or improper practices or behaviors.”

During 2016-2017, TPR closed 39,801 cases. In 3% of these, no further actions were required following initial contact; in 28% of cases a breach warning letter was sent to the employer, and in 69% of cases, it was necessary for TPR to use its formal powers, such as issuing compliance notices, unpaid contributions notices, and penalty notices.

“The proportion of formal notices has risen dramatically since last year,” said the report. “This is expected as we have made the transition from enforcing against medium employers to the higher volume of small and micro employers.”

Automatic enrollment has been rolled out in a staged approach. Businesses with 250 staff or more (large employers) had their staging date from October 1, 2012, to February 1, 2014; those with 50 to 249 staff (medium employers) staged from April 1, 2014, to April 1, 2015, and small (5-49 staff) and micro (1-4 staff) employers became subject to their duties beginning in June 2015. New businesses that started up after April 1, 2012, have been given a staging date from May 1, 2017.

The minimum contribution rate for defined contribution pensions, personal pensions, and some hybrid plans is being phased in over time. In April 2018, contribution rates will increase from a minimum of 2% overall (with at least 1% from the employer) to a minimum of 5% overall (with at least 2% from the employer). Minimum contribution rates increase again in April 2019 to a minimum of 8% total (with at least 3% from employers).

Employers must enroll all eligible jobholders into a qualifying pension, and make contributions. This applies to workers aged at least 22 but under state pension age, usually working in the UK and earning more than £10,000 per year. A worker who is automatically enrolled into a pension has the option to opt out of it within one month if they choose. Minimum contributions are being phased in so that from April 6, 2019, they will increase to 8% of qualifying earnings, of which a minimum of 3% must come from the employer.  


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