October 1st means we’re another month closer to Christmas for many but in the world of accounting and finance, it gives us a whole other reason to be jubilant. On that day we will be wishing happy third anniversary to the mostly-successful government scheme known as auto-enrolment and celebrating its positive effects on retirement saving. However while its impact has been promising in the main, there is still work to be done it seems.
Wait, what is this ‘auto-enrolment’ you speak of?
Short for ‘automatic enrolment’ and so aptly named, auto-enrolment it is a governmental scheme that came into action in October 2012 in an attempt to aid workers in accruing funds for later on in life via a pension scheme. In a pre-auto-enrolment world, workers had been missing out on the benefits afforded by these pension schemes through their own failure to enrol on the company’s system or through not being offered this as an option by their employer. This automated process negates the need for any action taken by the workers themselves as well as offering tax relief on their personal contributions.
Thanks to the introduction of the auto-enrolment process, companies are now obliged to automatically enrol their (eligible) staff into a pension scheme into which they must provide financial contributions. This process aims to tackle the longstanding issue of workers failing to save enough money to live comfortably through retirement and the financially insufficiency of the State Pension income. People are living much longer these days so the ability to accumulate a healthy amount of retirement savings is becoming increasingly important.
Full marks for effort but must try harder
Since its launch in 2012, millions of employees across the country have been enjoying the benefits of increased financial security. A survey of 658 workplace pension members carried out by investment firm, Hargreaves Lansdown found that more than 90% of those questioned agreed that the government’s choice to implement the auto-enrolment system was a positive one.
The research also demonstrated that as well as the obvious increase in financial security, there has also been a substantial improvement in the general comprehension of pensions. A promising 70% of those surveyed said that their understanding of pensions has drastically enhanced and 84% are now aware of how much they are putting into their retirement funds each month. This has cultivated a new widespread confidence that means 72% of members now feel confident in discussing pension matters with friends, family and colleagues.
However, the scheme was rolled out in a staggered format which began with large companies consisting of 250 employees but everybody else is having to wait their turn over the next three years. All eligible workers are expected to have been enrolled by the end of 2018 but in the meantime, this means many are still missing out on the security of an automated pension scheme.
Despite the vast and undeniable improvements there is still work to done to fine-tune the auto-enrolment process. In fact, more than 50% of those surveyed revealed that they don’t actually know where their pensions are being invested, while three in five admitted that they don’t yet have full confidence in their ability to save enough money for a comfortable retirement.
Tom McPhail, Head of Pensions Research at Hargreaves, said: “Auto-enrolment has been a great success so far; it has certainly improved the retirement prospects of millions of employees, however there is still a lot of work to be done.
“There is still a disconnect between auto-enrolment at the front end and the pension freedoms at the other end. The critical imperative is to keep working on employee engagement and to look for ways to make it as easy as possible for employees to deal with the challenges of saving for retirement.”
He added: “For all its success, auto-enrolment is leaving millions behind. If we include the self-employed, there are around ten million workers who are still not saving into a workplace pension; more work needs to be done to make sure they don’t miss out.”
If you want more information on auto-enrolment check out this handy video guide over on our YouTube channel, which you can find here.
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