Blog Article


Shaping the way ahead: regulation and the culture of saving

August 14, 2018

5 people sitting round a table chatting

Time flies when you’re helping your employees save for the future – it’s been nearly six years since auto-enrolment has been introduced.  Since then, nearly 10 million people have auto-enrolled – with 84% of eligible employees overall participating.

So, the introduction of auto-enrolment was a success. But it was also exactly that: an introduction. The next stage, contribution phasing, is designed to get people saving more and more, and begins in April 2019, when the total minimum contribution will increase again by law, from 5% to 8%.

Will 8% be enough?
There’s still work to be done.  According industry experts, 15% of salary – including employee and employer contributions – is what we should be aiming for. But how do we reach that: is the answer more regulation, or a focus on engagement? In other words, what’s the way ahead in shaping future thinking of workplace pensions – and how can regulation and engagement work side by side?

Regulation can help build a more inclusive culture
At the end of last year, the DWP published its Automatic Enrolment review 2017 report. This set out proposals to improve the way auto-enrolment works and build a stronger, more inclusive savings culture for future generations. The Government wants to implement these changes by the mid 2020s.

In the meantime, both phases of the auto-enrolment minimum contribution increases will be coming into effect.

These are the Automatic Enrolment review 2017 report’s recommendations:

  • Removal of the lower contribution earnings threshold.

Removing the lower limit will mean that minimum contributions will be calculated on the first pound of earnings (rather than from the lower earnings limit, currently set at £6,032). The upper cap will remain. So, your employees would benefit from increased pension contributions – and for those with several jobs, the lower earnings limit will no longer apply to each.

  • Auto enrolment to be extended to those aged between 18 and 21

As an employer, you will have to automatically enrol employees from age 18 instead of age 22. In fact, the PPI modelling in the report shows that an 18 year old earning a median salary has a better chance of achieving a higher pension pot if they start saving immediately at 18 with no lower earnings limit.  So, the benefit is that your staff will build up a bigger pension pot by saving for longer. And although there’s an increase in costs, it will be simpler for you when assessing eligibility.

  • Trials of approaches to increase savings of the self-employed

Most self-employed people are under-saving for their retirement, but it’s unlikely one solution will work for them all. The review recognised that in the absence of an employer, simply extending auto-enrolment to this population wouldn’t work. Instead, the Government will trial a number of other suggested models during the course of 2018.

The best way forward: combining regulation with employee engagement interventions
So, regulation is a good catalyst for change. But studies also show that with imposed contribution rates, employees see themselves as having little personal control. Many employees will also believe that the auto-enrolment minimum contributions are the savings level recommended by the Government for a comfortable retirement and they will feel less motivated to voluntarily increase their retirement savings levels above these minimums.

So what’s the way forward?

For your employee’s to be engaged enough to see the value of saving for retirement and to help them understand that the auto-enrolment minimum contribution rates will not be enough for them to achieve their retirement goals, legislative changes have to be combined with financial education and good communications.  This means encouraging positive employee interaction with their pension savings. Because although auto-enrolment has increased participation, it hasn’t necessarily increased engagement.

Download the full article to discover the potential impact of the upcoming regulatory changes. And find out more about the importance of employee engagement in our next blog.


 The views expressed in this blog should not be regarded as financial advice. The value of investments can go up and down and may be worth less than was invested. This is provided for general information only.

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