Millions of workers have slipped through the pensions net and failed to be auto-enrolled into the new workplace pension scheme.
Figures from The Pensions Regulator have revealed that 2.9 million workers have been successfully auto-enrolled since the system was launched, helping ensure these Britons will have a comfortable retirement.
But worryingly the report also reveals a much greater number – 3.6 million – have not been auto-enrolled and therefore will have to rely on the state pension and private savings to provide them with a retirement income. Of the 3.6 million it is estimated that three quarters are women.
Auto-enrolment was launched in October 2012 starting with the country's largest companies and around 10 million people will eventually be enrolled into schemes by 2018.
These workers do not qualify for auto-enrolment because they earn less than the minimum threshold, are too young - or are older than the state pension age. Because many of these workers are part-time a disproportionate amount of unenrolled workers are woman. Women are more likely to have flexible working hours following childbirth.
While not all of these workers should be in a pension, the system has been criticised for failing the vast swathes of part-time workers who would benefit from employer contributions to their retirement savings.
“Of the 3.6 million workers not auto-enrolled; some should be in a pension, some shouldn't,” said Hargreaves Landown head of pensions Tom McPhail. “The point is that just ignoring them isn't good enough so alongside the positive gains that are being made, we also need to promote joining for those who don't get automatically enrolled, and higher contributions for those that do.”
Currently employers are only obliged to match up to 1% of your salary in pension contributions, and a shocking 90% of firms only do the bare minimum.
From 2018, when auto-enrolment is fully implemented this will jump to a minimum contribution of 3% from the employer. Employees will be required to contribute 4% of their salary and there will be a 1% tax relief from HMRC.
But McPhail says that even this is not enough to secure a reasonable income in retirement.
“Auto-enrolment is off to a good start and the numbers joining pension schemes is promising. Unfortunately most people are not contributing enough,” he said.
“Even in another 4 years’ time when they are up to the minimum of 8% of earnings, it still won’t be enough to provide a reasonable income in retirement. Employees should use auto-enrolment as the catalyst to kick start their savings and put themselves in the best position to enjoy a financially secure retirement.”
According to calculations by Hargreaves in order to continue the standard of living workers have acquired by retirement they must start making pension contributions at 22 years old; but the majority of workers not being auto-enrolled are older than this.
