Ten years of automatic enrolment: Laying bare the pension adequacy challenge facing millions of workers

by | Sep 29, 2022

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To mark the ten-year anniversary of the introduction of automatic enrolment in October, AJ Bell has conducted independent research to assess the reforms*.

Yesterday, we focused on the immediate challenge posed by the cost-of-living crisis, the risk of opt-outs and a possible short-term solution. You can read that analysis here.

Today, we look at the major future challenge facing auto-enrolment, savers and the Government – adequacy. It coincides with today’s report published under embargo by the Work and Pensions Committee, which warns that more than 60% of people are at risk of missing out on an adequate standard of living in retirement despite the introduction of auto-enrolment and calls for a move towards a 12% minimum contribution rate.

Key findings:

  • Auto-enrolled workers estimate they will need income of £31,362 per year on average in retirement
  • The full flat-rate state pension provides an income worth £9,628 per year, leaving £21,734 to be generated from private pensions
  • Assuming the person wants their annual income to rise with inflation, a fund worth around £500,000 could be needed to sustain that level of income for 30 years**
  • A 30-year-old earning the average UK salary of around £30,000 a year auto-enrolled at 8% of earnings could be left almost £200,000 short of that target at state pension age***
  • Even a 22-year-old earning £30,000 who is auto-enrolled at 8% of earnings until state pension age could fall around £30,000 short of that target
  • Younger workers expect to need almost £40,000 a year to fund their lifestyle in retirement, compared to £28,000 a year for those aged 55 and over
  • Millions of savers risk sleepwalking to disaster, with a third (33%) believing their workplace pension will provide a good or very good standard of living in retirement

Tom Selby, head of retirement policy at AJ Bell, comments:  

“There is a yawning chasm between what people expect their automatic enrolment pension to deliver in retirement and what is likely to happen for the majority in reality.

“Auto-enrolled workers on average reckon they will need a total income of around £31,000 a year in retirement – just over the average wage in the UK. Assuming someone receives their full state pension entitlement, this implies more than £21,000 a year will need to be generated by their private pensions.


“A fund worth £500,000 could be needed to deliver that level of income for 30 years in retirement. Someone on the average UK salary who is auto-enrolled on 8% of total earnings from their 30th birthday risks being almost £200,000 short of this figure by the time they reach state pension age.

“The evidence suggests millions of people are sleepwalking towards this disappointment, blissfully unaware that minimum contribution levels under auto-enrolment will leave them well short of the income they think they will need in retirement. What’s more, a third of people anticipate their workplace pension will deliver a ‘good’ or ‘very good’ standard of living in retirement.

“This disappointment risks being even more acute for younger savers, who expect to need around £40,000 a year in retirement. By contrast, those aged 55 and over think they will need around £28,000 a year, suggesting a dose of realism kicks in with age.”


Addressing adequacy

“While saving anything for retirement will feel extremely challenging for millions of people during the cost-of-living crisis, it is vital policymakers consider keep pensions adequacy firmly in their sights.

“People failing to make sufficient provision to fund their retirement remains one of the most significant challenges of the 21st Century. Once the current crisis eases, the question of how to increase contributions beyond 8% will need to be considered.


“The Government could accompany any rise in minimum contributions with an ‘opt-down’ element, so workers who feel they cannot afford the increase are not forced into quitting pensions altogether. Improving people’s understanding of the value of retirement saving and boosting engagement could also help increase voluntary pension contributions.

“As an absolute minimum, the Government should commit to implementing the 2017 automatic enrolment review recommendations, including ditching the earnings bands so every £1 contributed qualifies for an employer match and tax relief, and reducing the minimum age someone qualifies for auto-enrolment from 22 to 18.”

The engagement and understanding gap 


“Improving engagement and understanding of retirement saving could also go a long way to addressing issues around adequacy. The better people understand the task at hand, the more likely they will be to take ownership of their financial future.

“Evidence from our survey suggests there remain plenty of gaps in people’s understanding of auto-enrolment, which may feed into some of the unrealistic expectations we see.

“For example, 43% of auto-enrolled workers are unaware of the option to choose their own investments, despite the fact most schemes offer at least some choice.


“Furthermore, over 1-in-10 (12%) didn’t know that by opting out of auto-enrolment they would be missing out on an employer contribution, while a quarter (25%) didn’t realise they could pay more than the level set by their employer.

“Improving understanding needs to be front-and-centre for everyone involved in helping people make the most out of their retirement savings. Part of this solution needs to involve addressing the advice/guidance boundary, which currently holds employers and providers back when communicating with millions of savers.”


*Figures from a survey of 1,123 UK adults aged 22-65 and employed, conducted by Opinium on behalf of AJ Bell between 8-12 September 2022

**Assumptions: income rises in line with 2% inflation per year, investment returns post charges = 4% per year, fund runs out after 30 years, 25% tax-free cash already taken 

***Assumptions: earnings increase by 2% per year, investment returns post charges = 4% per year, contributions based on total earnings, state pension age timetable remains unchanged (a 30-year-old will have a state pension of 68 based on existing legislation)

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