In normal times, the publication of a major Government review of auto-enrolment would be newsworthy. Apart from a series of mentions by Jo Cumbo, I have seen no publicity for it – from the DWP or their press office or even from the reliably upbeat Guy Opperman. It appears to have been overtaken by events – but it is a significant piece of work, which is a useful benchmark for future studies . I hope it does not mark the high-water mark for pension provision in the UK, but I fear we will look back at it with a sense of nostalgia as “the way we were”.
A COVID-19 free publication
The publication of its Automatic Enrolment Evaluation Report contains data till the end of 2019, but no mention of events this year that are likely to have a major impact on the long-term savings habits of many.
The forecast is, by its nature, uncertain and does not account for future economic factors, threshold changes or the effect of the National Living Wage, to give a few examples. It also does not account for cases where employers may come into existence or cease to exist as a result of changes to financial or legal status.
I must say , this publication shows remarkable integrity in not mentioning the threat of a pandemic. This is either heroic or blindly obstinate but either way it makes the report an interesting read
The majority of the report is not new being a re-appraisal of ONS ASHE, HMRC RTI and NatCen’s British Social Attitudes survey . There is not much re-evaluation to be done, but collating this work into a single publication and organising it effectively is valuable in itself
The report’s executive summary represents a snapshot of auto-enrolment functioning as it should in the months leading up to pandemic. It stops short of being self-congratulatory and is largely an objective view of what has happened till the end of last year.
“AE Employer duties” now part of employment DNA
The report suggests that awareness of employer duties is now part of employment DNA
In instantaneous newborns, prior experience of automatic enrolment implementation was even more common. The person responsible for setting it up had usually been employed at a previous workplace when automatic enrolment was introduced
The fear of large scale un-compliance amongst smaller firms and of unbearable administrative burden has receded. One’s mind goes back to initial reports by the IOD in 2013 . While auto-enrolment may have led to the suppression of wage growth , it should be remembered it was introduced in a period of wage lockdown as a result of the program of austerity introduced by George Osborne and maintained throughout the staging period.
NEST has been an outstanding success in terms of coverage
News of why NEST has been such a success is less encouraging
It was common for newborn employers to spend only a little time researching providers and to consider only one provider seriously. While some employers explained they had considered two or three providers, these were the exception. Employers’ limited research into available providers was typically due to a cautious attitude to compliance, and willingness to follow what they saw as an authoritative recommendation.
The typical decision-making process followed by newborn employers was to choose Nest in the first instance, unless they were prompted to do otherwise by some external factor. Where employers considered an alternative provider to Nest, this was usually triggered by a recommendation from a third party. Research with small and micro employers in 2017 indicated similar approaches. Most of these employers governed their selection of a pension scheme around the schemes ease of set up and use as well as its reliability, often choosing the “safest option” which was seen to be Nest.
For many employers the phrase “NEST is auto-enrolment” would go unchallenged. The DWP has done little to promote choice amongst small employers, the majority of active decision making has been amongst the pre-2014 stagers. But even for larger employers setting up a workplace pension , the provider procurement process was sketchy
Some of these employers used advisers to review other providers, however if the employer took responsibility for reviewing this themselves, the majority tended to describe only looking at new master trusts (e.g. Nest, Now Pensions, The Peoples Pension).
Most small employers sought help in choosing their workplace pension
The DWP survey with small and micro employers in 2017 found that 90 per cent of these employers had sought advice or guidance on choosing their new workplace pension scheme.
Most commonly, they approached an accountant or financial services firm (49 per cent), TPR (28 per cent), pension providers (27 per cent), payroll providers (22 per cent), Independent Financial Advisers (IFAs) (18 per cent) or pensions advisers (12 per cent).
Nest was the most popular pension provider amongst small and micro employers (chosen by 58 per cent), followed by The People’s Pension (11 per cent) and a range of other providers (each chosen by three per cent of employers or fewer).
By the clumsy categorisation , I suspect that most decisions were taken out of convenience rather than any conviction about “value for members”
It would have been good to have some more up to date numbers from NEST and some insights from this Government funded body as to their experience of employer decision making.
The “new” EPP survey
Where there is up to date data is in the DWP’s Employers’ Pension Provision (EPP) survey, which is shared in this report though yet to be published.
The main findings of this new research are that in the private sector less than 2/3 of employers are enrolling workers – a figure skewed by the large number of sole proprietor businesses within the 1-4 employee band (which didn’t have to stage).
This has led to a significant proportion of people missing out on workplace pensions. Less than 2/3 of employees in micro schemes get enrolled. It would be interesting to know whether these people are self-providing or falling through the cracks
The new findings of the EPP report are basically “no news”
New analysis within this report
- the proportion of workplace pension savers who made an active decision to stop saving (including opt-out and cessation) shows a slight increase from the 2018/19 financial year to the first quarter of the 2019/20 financial year (0.72 to 0.76 per cent), following the second increase of the automatic enrolment minimum contribution rates. Despite this slight increase, the overall rate remains low
- from April 2018 onwards, the period in which the increases to minimum contribution rates took place, the largest increases in rates of stopping saving (due to active decisions) were observed among those aged 22 to 29 and 30 to 39 (0.23 percentage points and 0.15 percentage points respectively). These increases are modest but notable relative to other age groups where the changes observed are negligible
- between April 2014 and June 2019, the average active decision stopping saving rate was slightly higher for males (0.76 per cent) than for females (0.59 per cent)
So what of tomorrow?
We heard yesterday (May 12th) that the furlough was to be extended to October 2020 with employers required to pick up 40 rather than 20% of furloughed pay. This is likely to put more strain on employer’s and furloughed employee’s cashflows and we await to see what this does to a) employment rates and b)voluntary contribution and opt-out rates.
If people keep on saving and employers keep on spending on workplace pensions then we really do have a robust and resilient savings system.
COVID-19 will be the latest and greatest test of auto-enrolment so far.