In an article published last Sunday, Harvey Jones, personal finance editor of the Daily Express chronicles the various political blunders that have led to the demise of occupational pension schemes and the scandals from Maxwell to BSPS, that have made matters worse. He details the loss of confidence in the state pension system to the WASPI women and recent underpayments exposed by former pension minister Steve Webb.

He concludes

Amid corruption, maladministration, Treasury greed and DWP incompetence, there is one exception to decades of pension misrule. Almost everybody agrees that the workplace auto-enrolment pension scheme has been a success.

We should cherish it.

His confidence in workplace pensions is well placed. The auto-enrolment system operates well and is democratising retirement saving to millions who otherwise would have little or no private savings in retirement. I am not sure I agree with his headline

State pension crisis shows why Brits must use popular savings plan that gives ‘free money’

but it is consistent with the popularity of workplace pensions which thus far have been scandal-free and do indeed seem to magic large amounts of “free money” to savers.

Sophisticated commentators underestimate how amazing it is for ordinary people to reach retirement and find , through the wonder of compound interest, the benefit of employer contributions and tax-relief and the stealthy way pension contributions are deducted from salary, that money emerges from in the pot, as if by magic.

It’s time to help people understand why pensions are so good! State pension crisis. This popular savings method gives you ‘free money’ https://t.co/YL3vqqavxa

— Ros Altmann (@rosaltmann) December 21, 2023

Such insights are not lost on Ros Altmann, who is quoted in the article arguing that more savers should be included in the system through the inclusion of young people starting out on their savings journey. I agree with her. Ros understands not just the power of auto-enrolment workplace pensions but the positive impact they have on people’s financial self- confidence.

It is rather sad to read on twitter, one pension expert commenting

 “auto-enrolment” is a con benefiting the pensions & investment industry. Why not give everyone the right to take higher pay instead of a pension contribution? (this right currently applies only to the highest paid). They can then save, or spend, as they choose

It is untrue to say that the right to be outside the workplace pension system applies only to the highest paid. We do not have a mandatory savings system as the Australians have, instead anyone can opt-out of auto-enrolment if they chose and though they are nudged to get back in through re-enrolment, many people choose to spend as they chose.

This is a very special feature of auto-enrolment and one we should indeed “cherish”.

How auto-enrolment could fall into disrepute

Like Harvey Jones, I’ve seen many “good things” fall into disrepute and I won’t list them. Things go well until they don’t and most pension systems have a honeymoon period. The AE system is still enjoying its honeymoon but sooner or later , a mature relationship with our pension system will show cracks and it is good to try and work out where those cracks will emerge, before we need to call in the lawyers.

There seem to me two medium term threats to auto-enrolment workplace pensions

1. Pot proliferation, people are already fed up with building up small pots and we are only 11 years into the AE regime. Many of us have pots pre-dating auto-enrolment, many  who have decades of work ahead of them , look forward with concern that they may reach retirement with 10+ pots.
2.  Pots and no pensions; attractive as the concept of a vast capital reservoir might be, when you get to later life and you find your income falling away, what you want is a replacement wage that can see you through retirement providing you and your family with financial security for as long as it is needed.

Let’s not kid ourselves that the workplace pension schemes we have in place – including the Government scheme – Nest, provide an answer to these two problems. We need to take active steps to solve these problems before they bring auto-enrolment into disrepute. The demise of our corporate DB system, of the with-profits AVC saving system, of stakeholder pensions and of many other well meaning initiatives has occurred because we did not plan ahead and avert problems before they became acute.

It is easy with hindsight to look back at the mistakes , but much harder to point to the successes. There are successes, I think that the state pension system would have been a lot worse had we not simplified things in 2016, I think we had to put an end to compulsory annuitisation at the same time and I do agree that the reforms that came out of the Pension Commission have given us a better saving system than stakeholder pensions or the personal pension system before it.

But we have not yet found a way to create a pot for life, or to turn pots to pensions. We have proposals for both, but as yet there is no way that an individual can find themselves with  a pot for life at retirement, without the ball-ache of the current consolidation system and turning a pot to a wage for life still involves the hazards of drawdown or the unpleasant exchange rates of an annuity.

It is important that we support central initiatives on pot consolidation and pot to pension conversion and do not obstruct the evolution of auto-enrolment. We do need a private pension system to compliment the state system and the public pensions that provide for those employed by the state. We should recognise and celebrate our wins, but we must not become complacent