2.5 million workers left behind by auto-enrolment

1 October 2013

A year on from the introduction of auto-enrolment for pensions, up to 2.5 million workers have been left behind by the policy, according to financial advisers.

Auto-enrolment, introduced on 1 October 2012, requires employers to automatically enrol workers into a workplace pension scheme as long as they earn more than £9,440.

It has largely been successful, with 1.6 million people now saving into a pension who weren't doing so before, according to Hargreaves Lansdown (HL).

However, because the legislation only requires those aged between 22 and State Pension age to be automatically-enrolled, up to 2.5 million people who are younger or older than this, along with low-earners, are still not in their company pension scheme – many of these will be part-time female workers.

Laith Khalaf, head of corporate research at HL, said that while the percentage of people opting-out of auto-enrolment within a month of it starting was low – at just 10% – too many people remain unaware of how their pension scheme works or what they are investing in. He calls these "pension zombies."

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"Automatic enrolment is a necessary and positive step, but it is not a silver bullet," he said. "It risks creating a nation of pension zombies who don't know what they are saving, or why. Unless auto-enrolled workers get help to answer these questions, they will always be in danger of falling off the savings wagon."

Moreover, small and medium-sized companies are yet to begin auto-enrolment. During the last year, 2,256 large firms have automatically enrolled, but 29,000 medium-sized firms are due to start automatically enrolling in the first half of next year.

HL said these firms have fewer HR resources to deal with auto-enrolment, which increases the risk of "non-compliance". The Pensions Regulator has already launched 89 investigations into possible non-compliance by large companies.

However, Tim Jones, chief executive of NEST, said auto-enrolment had gone well: "As we look back over the last year, we have achieved a great deal, we have learnt a great deal and we know we have a great deal more to do.

"From evidence over the past 12 months, it is clear that savers responded far more positively to automatic enrolment than we as an industry thought possible - with opt-out rates of less than 10%."

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