The TUC’s Tim Sharp looks past the positive auto-enrolment stats, to the low paid and self-employed who may slip through the savings net

You can spot the moment when people have run out of ideas during a discussion on pensions when they start talking about the importance of education.

Additional consumer education has the advantage that no-one is likely to oppose it, those who have made mistakes in their saving can be castigated as ill-informed, and, best of all, it is generally someone else’s job to deliver it.

In that, it ranks just below suggestions of iPad applications in both its superficial desirability and likely minimal impact on long-term savings habits.

It was in a discussion about the next steps for auto-enrolment that I most recently heard education being used as a pensions trump card.

That auto-enrolment is an astonishing success so far, has been evident from a flurry of recent studies.

The Pensions Regulator found that 99% of the UK’s largest employers met their legal duties without the need for it to use its statutory powers (although it would be intriguing to know how much cajoling has gone on in the background).

A separate study by the National Institute of Economic and Social Research showed that opt-out rates at those employers that have introduced auto-enrolment are around 9%. While they may increase from here as potentially less enthusiastic smaller employers, with little personnel infrastructure or capacity, start to enrol staff, it is an unexpectedly strong outcome.

The Pensions Policy Institute (PPI) has estimated that if the opt-out rate from automatic enrolment stays at 9%, 8.5 million people could be newly saving in a pension by 2030 and there could be 15 million people actively saving into private sector workplace pension schemes in total.

Low earners are ill-served by the current structure of auto-enrolment

But there remain important gaps. In their number are the rapidly expanding ranks of the self-employed, many of whom are not the entrepreneurs of Westminster imagination but who are doing the same work as employees with poorer working conditions and often less take-home pay. 

They are not automatically enrolled in the new system but have found saving for a pension increasingly problematic. The PPI has found that in 1991/92, 66% of self-employed people were members of a personal pension scheme, while in 2011, only 34% were members.

Low earners are ill-served by the current structure of auto-enrolment. A major barrier, particularly those in a part-time job or jobs is the £10,000 earnings trigger for auto-enrolment.

With the average part-time salary just under £9,000 a year, the Trades Union Congress has calculated that the majority of the UK’s six million part-time workers will no longer be automatically enrolled into a workplace pension. Many would benefit if this year’s review of the enrolment thresholds sought to bring more into the system.

Thought also has to go into contribution rates. Pensions Minister Steve Webb has acknowledged that even when total minimum contribution rates reach 8% of band earnings (which on average is probably less than 5% of wages for most savers), this will be inadequate for a decent retirement income. But there is a risk, particularly if employees are asked to stump up a lot more, that many could stop saving.

The worst thing for auto-enrolment would be another scandal

It should be noted that in Australia, its equivalent system is on the path to a 12% employer contribution by 2019, up from 9% now. Such long-term signposting would allow employers to work with the likes of trade unions to decide how to deliver contribution increases.

One new hurdle is the hastily-arranged move to so-called pension freedom and choice. Consumer group Which? noted in a report last week that auto-enrolment has shown the importance of default options.

That Australia is considering partial compulsory annuitisation should serve as a warning that many in the UK could lose out if they are forced to make additional, complex decisions about retirement.

The worst thing for auto-enrolment would be another scandal which could deter a further generation from saving for retirement.

Tim Sharp is policy officer at the TUC