|Date:||17 November 2016|
|Authors:||Jonathan Cribb and Carl Emmerson|
Automatic enrolment – where employers have to enrol employees into a workplace pension scheme, from which employees can then choose to leave – increased pension saving by £2.5 billion per year by April 2015.
This is one of the main findings of new research, published today by the IFS and funded by the IFS retirement saving consortium.1 The research exploits data on almost half a million jobs from April 2011 to April 2015 to look at how contributions to workplace pensions by private sector employers and their employees have been affected by automatic enrolment.
The increase in pension saving arises from a big increase in pension membership. We find that automatic enrolment increased pension participation among those eligible by 37 percentage points, so that by April 2015, 88% of these private sector employees were members of a workplace pension scheme. In contrast, prior to automatic enrolment around half of these employees were members of a workplace pension and membership had been falling over time.
In 2012 there were around 5.4 million private sector employees who were a member of a workplace pension. By 2015 this had increased to 10.0 million. Of this increase of 4.6 million our estimates suggest 4.4 million was the result of automatic enrolment. At this point one-quarter of eligible private sector employees (3.4 million) worked for an employer that was still to be brought into the scope of the policy.
Further findings include:
Jonathan Cribb, a Senior Research Economist at the IFS, and an author of the report said,
"Automatic enrolment has been very successful in boosting membership of workplace pensions. This has been particularly true of younger employees aged 22 to 29 and relatively low earners on between £10,000 and £16,000 per year. Significant numbers of those not directly targeted by the policy have also been brought into workplace pensions, such as those earning less than £10,000. The story of automatic enrolment is certainly a case of so far so good. A key issue is whether those brought into workplace pensions at low contribution rates will remain in when minimum contribution rates start rising."
1. The IFS Retirement Saving Consortium comprises Age UK, Association of British Insurers, Chartered Insurance Institute, Department for Work and Pensions, HM Revenue and Customs, HM Treasury, Investment Association, Legal and General Investment Management, Money Advice Service, and Tax Incentivised Savings Association. Support from the ESRC-funded Centre for the Microeconomic Analysis of Public Policy (CPP) at IFS, grant reference ES/M010147/1, is also gratefully acknowledged.
2. This research will be published on the IFS website at 00.01 on Thursday 17 November: www.ifs.org.uk. It will also be presented at a briefing, hosted by the Association of British Insurers in London, on the same day, 15:30 – 17:30. A response to the research findings will be given by Richard Harrington MP, the Parliamentary Under Secretary of State responsible for pensions at the DWP. Full details and a booking form can be found here: https://www.abi.org.uk/Events/2016/Automatic-enrolment-launch
3. Automatic enrolment into workplace pensions was legislated in the Pensions Act 2008 following the recommendations of the Pensions Commission. It means that employers must automatically enrol their eligible employees into a workplace pension. Eligible employees are those who are aged 22 to the state pension age, earn at least £10,000 per year and have been in their job for at least 3 months. Automatic enrolment began being rolled out to the largest employers in April 2012 and is gradually being extended to smaller employers with this scheduled to be complete in 2018.