If I were to point to the most sensible decision made in pensions policy in the last 20 years, the introduction of auto-enrolment (AE) in 2012 would no doubt top the list.

In one swoop, the mandatory law made saving for retirement the norm and improved the chances of maintaining a decent standard of living in later life for millions of employees.

Of course, AE was never supposed to be the last word. It was meant to be the beginning of a vital and belated overhaul of UK retirement saving. The original legislation wasn’t perfect. There is still work to be done, and there is an argument the recent proposed changes to the policy are not sufficient to support a nation stricken with a chronic under-saving problem.

The changes

The initial review of AE in 2017 made strong recommendations about extending the scope of the legislation and last year the Department for Work and Pensions (DWP) made it official: AE was changing.

Around 38% of UK workers – almost 12.5 million people – are under-saving for their retirement. This is a massive problem

The minimum age for enrolment would reduce from 22 to 18 and employers would also need to apply the mandatory 8% contribution to earnings from the very first pound, rather than just earnings above £120 per week.

At the time, the sector was somewhat split on whether the proposed reforms went far enough. It still is. Expanding coverage to include 18-year-olds is a positive step forward, as it gets younger people into the habit of paying into a pension much earlier. The removal of the lower earnings limit will have an even bigger impact, simplifying the rules and proportionately giving more benefit to lower earners.

But while these changes are a step in the right direction, we are still far away from reaching a destination where everyone saves adequately for their future.

The crisis

It’s already problematic enough that the proposed reforms will not come into action until the mid- to late-2020s, meaning many younger employees will miss opportunities to save a little extra in their pension pots. But that’s not the biggest problem. Our industry must face up to the fact that headline saving amounts alone are not enough to provide an adequate retirement for most people.

33% of UK workers have less than £500 saved, and 13% are living their lives without any financial safety net whatsoever

According to the DWP, around 38% of UK workers – almost 12.5 million people – are under-saving for their retirement. This is a massive problem.

We also need to consider whether AE is sufficient to meet the needs of a diverse workforce.

Under the current legislation, self-employed UK workers are not eligible, and so their pension participation has been in freefall.

In 2023, the Institute for Fiscal Studies found private-pension participation among the long-term self-employed plummeted from 33% between 2005-2006 to just 14% between 2014-2015.

Some solutions have been offered – Smart Pensions presented a new way for self-employed people to invest in their retirement savings – but our industry must work with policymakers to deliver a sustainable one for this underserved demographic.

The definition

The UK isn’t only failing to save for its retirement – it is neglecting to save on a more general level, too. Right now, AE only accounts for pensions. While saving for retirement is important, it is also important we do not ignore short-term financial resilience.

There is a compelling argument to extend the scope of AE to cover emergency and short-term illness savings, too. New research by Lowell shows a third (33%) of UK workers have less than £500 saved, and one in 10 (13%) are living their lives without any financial safety net whatsoever.

If we plan to reverse the UK’s undersaving crisis, we must view pensions, emergency savings and every other type of savings as one integrated package

This must change. The way forward is by expanding the scope of AE so it supports not just retirement saving but saving for every possible eventuality.

It was always accepted that AE was not a silver bullet. If our industry is to truly build on the foundations laid in 2012, we must think of savings more holistically. Yes, people should save more for their retirement and, ideally, more young people and underrepresented groups should begin to save at an earlier point in their careers.

But if we plan to reverse the UK’s undersaving crisis, we must view pensions, emergency savings and every other type of savings as one integrated package. Only then will AE go far enough to support everyone’s savings needs.

Mark Pemberthy is benefits consulting leader at Gallagher UK

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