Most people agree that auto-enrolment has been a success. It is the modern client state in action, and a sign of great change since Mrs Thatcher’s reforms that it should be introduced by a Conservative Government.
The downside is highlighted in a report in Pensions Expert. “Auto-enrolment is set to create 50m dormant pension pots by 2050, which may cost savers up to £1bn in administration charges.”
There are more than 9.5m savers now auto-enrolled into a workplace pension, with more than 1m employers participating, according to the Pensions Regulator. But under the current system, a new pot is established for the saver every time they change jobs.
In 2011, research by the Department for Work and Pensions indicated that UK employees take an average 11 jobs in their careers, and a quarter of workers work for more than 14 employers. Because the contractual relationship exists primarily between the employer and the pension provider, the individual doesn’t have ownership of their retirement savings. Savers who want their new employers to contribute to their pension are forced to sign up to a new pension.
The evidence suggests it is proving even tougher to engage the self-employed with pensions.
This picture is further complicated by the rise of self-employment in the UK. There are currently about 5m self-employed workers in the UK, according to the Office for National Statistics, up from 3.3m in 2001. Their engagement with pensions is currently low.
Data from HM Revenue & Customs shows that of the 5m self-employed workers in the UK, just 350,000 contribute to a pension. So much for choice. But the vast majority of the self-employed have employment experience and will therefore have entered into a workplace pension at some point in their careers – and still they vote no to personal pensions.
Pension Week research indicates that in the early years of having a pension pot, 44 per cent of group pension members are disengaged. After spending a decade with the same pot, 11 per cent are still disengaged.