Since beginning in 2012, auto-enrolment has revolutionised saving for millions of people in the UK. In April 2021, the UK workplace pension participation rate was 79%, compared to 47% in 2012, when auto-enrolment was introduced.
However, significant gaps remain in pension awareness and engagement, with female and lower income workers disproportionately less likely to review their pension. Overall, almost one in five UK workers have never reviewed their pension, according to new research from Standard Life, part of Phoenix Group.
This rises to a quarter (25%) of female workers, compared to only 13% of males who have never reviewed their pension. Those with lower incomes are also more likely to have never undertaken a review of their pension savings, with 34% of those with an income between £10k and £20k, and 21% of those with an income between £20k and £30k saying they have never checked their pension. This drops to 15% among those earning between £30k and £40k, and 14% among those earning between £40k and £50k.
With the tenth anniversary of the introduction of auto-enrolment in October, Standard Life conducted research to demonstrate levels of consumer awareness and engagement with their workplace pension. More promisingly, 20% of workers say they review their pension once a year, 16% do so every six months, and 12% every other month.
Standard Life’s research showed that the majority (58%) of workers could define what an auto-enrolment pension is, correctly selecting ‘Employers offer a workplace pension scheme and automatically enrol eligible workers in it.’ However, 23% incorrectly defined it, while a fifth (19%) admitted that they simply do not know what an auto-enrolment pension is.
Pension review prompts
For those that do review their pension, the main prompt for doing so is receiving their annual statement (28%) – rising to 37% among 35- to 54-year-olds compared to 18% among 18- to 34-year-olds and 28% among those aged 55 and over.
Other key triggers include receiving communication from their pension provider (19%), receiving their monthly pay (16%), changing jobs (12%) and getting a promotion or pay rise (11%).
The younger demographic (aged 18 to 34) are most likely to be prompted to review by receiving their monthly pay (24%), changing jobs (19%) and receiving a pay rise (19%).
Jenny Holt, Managing Director for Customer Savings and Investments at Standard Life said: “Since it was introduced ten years ago, auto-enrolment has revolutionised pension saving for millions of people in the UK, encouraging a culture of saving for the long term. It’s been a positive initiative and crucially, with individuals now having to take more responsibility for their retirement savings, it has meant many people now put some money away each month for retirement.
“However, it’s clear that auto-enrolment awareness and engagement levels could be improved further, and a decade on, it could be a good time to evolve the eligibility criteria. For example, reducing the age limit to 18 and removing the lower earnings limit would mean that more people could benefit in future. Meanwhile, providing regular, relevant and targeted communication to employees, and offering financial education can further boost knowledge and confidence around the subject. Supporting employees with their wider financial wellbeing and demonstrating how retirement savings form a crucial part of this is a great way to boost engagement.”
Jenny Holt outlines some of the key benefits of being auto-enrolled:
- Regular savings habit – “When you have a workplace pension plan in place, it’s easy to stay in the habit of saving because payments usually come straight from your salary. You don’t have to sort any of this out yourself either, as when you join a company you’re automatically put into the pension scheme, so it’s really easy to save this way.
- Employer contributions – “With a workplace pension scheme, your employer has to contribute a minimum of 3% of your qualifying earnings towards your future too. Some employers will pay more than the minimum and others will pay more into your pot if you do – known as matching. If you’re not auto-enrolled, then you will miss out on these contributions.
- Tax relief – “Most people will receive tax relief from the government when they pay into a pension, and this is one of the major benefits of the scheme. Individuals get 20% tax relief from the UK Government on their pension payments, meaning it will only cost you £80 to have £100 invested into your pension plan. Most people are entitled to claim tax relief on the pension payments they make based on the highest rate of income tax they pay. This means the benefits are usually even more for higher or additional rate taxpayers.
- Option to pay in more – “You can pay in more than the minimum amount required to your pension, and if you can afford to do so, this can be beneficial in the long term. Topping up your payments means the impact of compound interest is much more significant and can result in a much larger retirement pot.”