Over 12 million private sector workers will be “outside the auto-enrolment tent” by 2018 if the government does not lower the earnings trigger or find a way to include to self-employed, according to the Association of Consulting Actuaries.

The ACA noted that over 40 per cent of employees of micro employers, with fewer than five workers, are paid under £10,000 a year, meaning that although these companies are due to reach their staging dates in the next 12 months, many will be ineligible.

Its survey, conducted over summer 2016 covering 455 smaller employers, also found that opt-out rates increase to over 21 per cent of eligible jobholders in smaller firms. Therefore, the ACA said it seems likely that upwards of 60 per cent of employees amongst the vast majority of firms left to stage may miss out on joining the ranks of pension savers.

Commenting on the findings, ACA chairman Bob Scott said: “Many have commented to date about the generally low level of pension contributions being saved into most auto-enrolment schemes, and rightly so. Our survey underscores that in smaller firms the problem is heightened, with those joining auto-enrolment generally at or near the minimum levels of total contributions, which amount to less than 2 per cent of earnings at present.

“Worse still, the survey findings point to both higher levels of opt outs than has been the case when larger employers enrolled employees, alongside huge numbers excluded from auto-enrolment on income grounds alone. This is beginning to be reflected in the monthly TPR figures, with the latest months’ showing those ineligible for auto-enrolment rising towards 40 per cent.”

Furthermore, Scott urged the government to consider the recommendations made by the ACA for the upcoming 2017 auto-enrolment review. These include reducing the earnings trigger to boost the numbers eligible for auto-enrolment, and measures to simplify and add greater flexibility – particularly when minimum contributions are set to rise in 2018 and 2019.

However, only 32 per cent of small firms support lowering the earnings trigger to below £10,000 to extend auto-enrolment eligibility.

“We also believe that the government, given the uncertain economic backcloth, may need to plan ahead and build in both tax and National Insurance adjustments into future spending plans so as to encourage greater private pension saving in the years ahead,” Scott said.

In addition, the survey found that only 15 per cent of small firms support increasing minimum auto-enrolment contributions after these reach 8 per cent of qualifying earnings in April 2019.

Scott added: “The survey results make it absolutely clear that the pensions industry and government must increase their efforts to convince the public of the essential need to save more for their later years. This may involve many people having to review their spending patterns and life-style choices.

"Whilst we sympathise with the financial pressures on businesses of all sizes in supporting higher pension contributions, employers too need to help more, particularly if the government and regulator contribute respectively through fiscal measures and applying genuine simplicity. What as a society we cannot afford to do is to accept that millions of private sector employees are totally financially unprepared for their retirement years.”

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