How do we make auto enrolment a policy that works for everyone?

Two reports published this week drew attention to the fact that women are missing out when it comes to private pension saving.

The Department for Work & Pensions’ (DWP) quarterly update of analysis on auto enrolment 2016 highlighted that just 36% of people eligible for auto enrolment are women which means a disproportionate number of women are being excluded from auto enrolment.

Disproportionate number of women excluded from auto enrolment

Reasons for the disparity between men and women regarding auto enrolment

DWP say this is due to “underlying labour market factors such as earnings, work patterns and participation rates”. Essentially what this means is that women are more likely to earn less than the auto enrolment trigger (£10,000) and are more likely to work part time due to family commitments.

While many of these women would be eligible to opt in, in our experience very few do. Our own data also shows that women are more likely to opt out of auto enrolment than men. Of our membership 6% of women have opted out versus 5% of men.

The second report to shine a light on this issue was John Cridland’s interim report on the State Pension age.

One of the key findings of the Cridland Review is that while the new State Pension will deliver equally for both men and women, it’s occupational pensions that are leading to men enjoying higher total pension income than women.

The review finds that female pensioners are typically £60 a week (£3,000 a year) worse off than males, and that the situation will be worse by the time Generation Y (those born between 1980 and 2000) retire.

In total, just under 30% of women’s total pension savings is made up of private pension, compared to just over 40% of men’s. Again, this is due to women on average earning less than men across their working lives and being more likely to take career breaks.

So, how do we redress the balance and make sure auto enrolment is a policy that works for everyone?

In 2017 there is a statutory review of auto enrolment which will be a golden opportunity to address the design features that discriminate against low earners, of which women make up a higher proportion than men.

The two easiest ways to do this would be to remove the auto enrolment trigger so everyone is auto enrolled regardless of their salary and to remove ‘qualifying earnings’ from the auto enrolment calculation.

Auto enrolment minimum contributions exclude the first £5,824 of a savers’ salary, so that for somebody earning £10,000, just £4,176 count for the purposes of auto enrolment. Over a lifetime of pension saving, basing auto enrolment minimum contributions on every pound of earnings would significantly improve outcomes for all savers, but particularly women and the low paid.

The Cridland Review observes that whilst the State Pension system gives credits to carers, the occupational pension system does nothing for them, and time out of the labour market then results in lower overall pensions for many women. Maybe we need to extend the credit system so that Government contributes to the auto enrolment pensions of those with caring responsibilities to correct this unfairness.

One thing is clear, while on many levels auto enrolment is working, at the moment it’s not working for everyone.

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