The upcoming increases to auto-enrolment contributions will “test the inertia principle” of saving, according to The Pensions Regulator chief executive Lesley Titcomb.

Currently the minimum contribution for employees who are auto-enrolled is 1 per cent, but this will rise to 3 per cent in April 2018 and 5 per cent from April 2019. However, research published last week by Scottish Widows suggested that 52 per cent of under-30s will opt-out of their workplace pension schemes when contributions rise.

Asked what needs to be done to prevent people from opting out at the ABI’s long-term savings conference in London, 4 July, Titcomb said it is “terribly difficult to say” but she does think “there is a challenge” especially if earnings continue to be constrained.

“We’ll get a trigger on this when the phased increases come next April, but the fact is the whole damn thing is built on inertia and in order to opt-out they’ve got to sign a form. Well only 9 per cent of them have signed a form to date so it’s a real test of the whole inertia principle. It’s one thing answering a survey, it’s another thing actually taking a decision.

She added that the impact of auto-enrolment increases may also inform the debate about whether auto-escalation should be introduced, so when you get a pay rise a certain per cent of it automatically goes to increasing your pension contribution.

In addition, also speaking during the panel session, independent reviewer of the state pension age, John Cridland, said he thinks the “austerity debate is going to cut into the pensions debate.”

He also said we need to look at the groups that “fall between the cracks” when it comes to auto-enrolment, such as women and the self-employed.

“My work on the state pension showed women get a poor deal on pensions, they no longer get a poor deal because of the state pension, we solved that problem with credits for years they are not earning, they get a poor deal because their absence from the labour market means they have lower private savings.”

“Women with interrupted careers will fall between the cracks unless the pensions industry is able to provide funds that enable people to keep continuity of contributions in years when they are not necessarily earning.”

He added, that the self-employed also don’t generally get a poor deal from the state pension either, they get a poor deal because they don’t save privately.

Share Story: