The Department for Work and Pensions (DWP) has successfully introduced automatic enrolment to workplace pensions for large and medium-sized employers, who account for around 20 million workers, according to today’s report from the National Audit Office. There are, however, significant risks ahead, as 1.8 million smaller employers are required to enrol their workers by 2018.
The Government faces significant challenges in ensuring that people have adequate incomes in retirement. People are living longer and fewer have been saving into workplace pension schemes than in the past. Automatic enrolment aims to reverse the long-term decline in the number of people saving into workplace pensions.
The NAO finds that 58,000 employers have enrolled 5.4 million workers between October 2012 and August 2015. The DWP is now rolling out automatic enrolment to smaller employers which poses new challenges for the programme. Smaller employers are expected to have different requirements and responses to automatic enrolment. Greater operational challenges will also be created as the number of smaller employers increases. While most eligible workers work for larger employers and have already enrolled, the vast majority of employers still have to start automatic enrolment.
Today’s report says that DWP has worked well with The Pensions Regulator and The National Employment Savings Trust (NEST) to design the programme and engage with providers and other stakeholders. Furthermore, opt-out rates have been between 8% and 14%, much lower than expected.
DWP originally expected implementation of the programme to cost £1.1 billion, but it reduced this to £1 billion in its 2015 estimate, largely because of reduced costs of The Pensions Regulator. Programme spending is on track at £554 million to the end of March 2015, which is around half of total budgeted costs. DWP estimates that employers will spend £500 million setting up automatic enrolment and £140 million each year on administering automatic enrolment.
The longer-term success of the programme will depend on its ability to stimulate higher retirement incomes. The Department will also need to monitor the way the programme interacts with wider pension and welfare reforms.
According to the NAO, DWP should assess the impact of wider pensions policies, including pensions flexibilities, on automatic enrolment and monitor emerging trends and concerns, paying particular attention to the responses of employers and scheme trustees.
“The Department for Work and Pensions, The Pensions Regulator and The National Employment Savings Trust have worked closely together to introduce the automatic enrolment programme. They all have a clear understanding of their roles and the programme has so far delivered value for money. And more people are now saving for retirement. But significant risks remain. The volume of smaller employers will impose significant pressures and DWP will need to ensure that more widespread enrolment translates into higher retirement incomes.”
Amyas Morse, head of the National Audit Office
Notes for Editors
Expected increase in people newly saving or saving more in qualifying workplace pensions in 2018 as a result of automatic enrolment
Expected number of employers who still need to comply with automatic enrolment duties by 2018
Budgeted costs to government of the automatic enrolment programme up to 2018 (excluding tax reliefs)
People automatically enrolled into new workplace pensions by the end of August 2015
Employers complied with automatic enrolment requirements by the end of August 2015
8% to 14%
Proportion of people opting out of automatic enrolment at August 2015 (compared with an initial assumption of 28%)
Proportion of eligible employers declaring compliance by 1 September 2015
Proportion of employers yet to enrol their workforce, which have only 1 or 2 workers
Increase (from 1.3 to 1.8 million) in The Pensions Regulator’s estimate of the number of employers still needing to comply with automatic enrolment duties, published July 2015
Pensions policy has changed significantly over the last 10 years. Following the Pensions Commission report in 2005, successive governments have: raised the state pension age; introduced more generous increases in the state pension; reformed the state pension system; introduced new flexibilities for taking out pension savings; and made enrolment into workplace pensions automatic for most workers.
State pension spending is projected to increase from 5.5% of GDP in 2015 to 7.4% in 2060. Automatic enrolment aims to reverse the long-term decline in the number of people saving into workplace pensions. Employers will have to enrol workers into a workplace pension scheme if they are working in the UK, earn more than £10,000 per year, are over 22 years old and are under State Pension Age. Workers can then choose to opt-out, but automatic enrolment builds on evidence of inertia in people's savings decisions to encourage more people to save for retirement.
Employers informed The Pensions Regulator that of the 20.5 million workers they employed, 9.4 million eligible workers already belonged to a pension scheme equivalent to the ones operating under automatic enrolment and 5.2 million were not eligible.
Press notices and reports are available from the date of publication on the NAO website. Hard copies can be obtained by using the relevant links on our website.
The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Sir Amyas Morse KCB, is an Officer of the House of Commons and leads the NAO, which employs some 810 people. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of £1.15 billion in 2014.