Auto-enrolment (AE) in the UK, while successful, falls short of the Pensions Commission’s vision after a decade, according to Now: Pensions CEO Patrick Luthi.
Luthi calls to bring AE into line with the initial idea for an all-inclusive pension provision. He argues that a significant percentage of people of working age (38 per cent) do not save enough for retirement. He highlights that actively encouraging increased savings is still a difficulty, even with minimally effective engagement.
In comparison to other nations, the UK’s AE system has fewer contributions. Luthi highlights that in light of the problem of the cost of living, a strategy for investigating higher contributions and expanding AE is needed.
Luthi says: “There have been great successes with AE, however, over a decade into the delivery it’s clear that the full extent of the original vision of the Pensions Commission has not come to pass. There are still individuals who will not achieve adequate retirement incomes. DWP research found that 38 per cent of working age people (equivalent to 12.5 million) are undersaving for retirement when measured against Target Replacement Rates Before Housing Costs.
“Whilst auto-enrolment successfully harnesses inertia, resulting in millions of people saving at that minimum – a key part of the Pensions Commission vision was that people would save over and above the statutory level. But the age-old challenge of active engagement and ‘saving more’ remains.
“This is an important conundrum to address, especially given the UK AE system has significantly lower levels of contributions compared to other similar systems. For example, in Australia minimum contribution rates are 11 per cent (moving to 12 per cent on 1 July 2025) and in Sweden are 18.5 per cent.
“The cost of living crisis undoubtedly makes this a difficult topic to explore. But that is why a Roadmap for the future of AE, detailing how contributions could potentially increase over time and how the scope of AE could be expanded, is urgently needed. It is not necessarily about making changes immediately – it is about exploring a range of options, the issues including impacts on savers and employers, what factors should be considered to support change, building consensus, and mapping out a future that we can all plan for.
“It’s vital that the overarching system works for all and that the unifying nature of the original AE vision for pensions provision is not left behind. In 2024 NOW: Pensions will develop proposals on the future of AE and how it can continue to evolve to support savers and employers.”
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