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Auto-enrolment during a cost-of-living crisis – what is the way forward?

With more than one in five households spending more than they have coming in, is now the time to expand the automatic enrolment policy? Any changes would have a significant impact on both employees and employers.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in. These articles are intended for employers and HR professionals, not for individual investors.

The first decade of auto-enrolment has largely been a success. According to The Pensions Regulator, more than 10.7 million employees have been auto-enrolled into workplace pensions during that time. By saving more into pensions, employees are boosting their potential income at retirement and building a better financial resilience for later life.

In the run-up to auto-enrolment there were concerns that as many as one in three employees could opt out of the scheme. However, the predictions were incorrect, with opt out rates consistently around 10%, even when minimum contributions were increased.

Participation rates

  • 79% workplace pension participation rate in April 2021.
  • 47% workplace pension participation rate in 2012 (before auto-enrolment).

As auto-enrolment enters its second decade, it could continue to help employees build their long-term financial resilience. But there has been much discussion about how to move auto-enrolment forward and boost contributions. Against the current macro-economic backdrop, things aren’t so simple.

With household budgets being increasingly squeezed, encouraging or mandating an increase in pension contributions could have a negative impact in real terms. Rather than boost private pension savings, employees may instead choose to freeze contributions or opt out of schemes altogether.

The 2017 auto-enrolment review

The findings of the auto-enrolment review in 2017 recommended reducing the minimum age from 22 to 18 and allowing employees to contribute from the first pound of income.

According to the initial timeline, these recommendations were due to be implemented in the mid-2020s.

Meanwhile, the Association of British Insurers (ABI) has suggested that the minimum contribution levels should be increased to 12% over the next 10 years.

The timing of this also needs to be balanced against 30-year high inflation figures, which is putting pressure on all our pockets today.

The calls for contributions to increase is a difficult conversation to have in a cost-of-living crisis. But many may be unaware of the need to save more towards retirement.

HL Savings and Resilience Barometer

Earlier this year we used the HL Savings and Resilience Barometer to model the likely impact of the introduction of the 2017 Review reforms, as well as a step up to 12% minimum contributions.

The 12% minimum contribution scenario creates a stark impact. Household surplus income would fall by 8.8% straight away, with a knock-on fall in emergency savings adequacy of 9.8% by 2029.

The lowest income households are estimated to benefit more from the proposed reforms, but those reforms would come at a greater cost. Their pension value could be boosted by 15.5% under the 2017 reforms, but the measure for surplus income for those households would immediately decrease by a substantial 22.2%.

At a time when it’s already hard to pay the bills, such a hike in contribution rates could leave many in real financial difficulty.

How the changes to auto-enrolment might affect your employees

The way forward

We’re proposing the following:

  • The government should press ahead with the 2017 auto-enrolment review reforms. However, they need to be timetabled far enough in advance so that any after-effects from the current cost-of-living crisis have disappeared. The modelling suggests this shouldn’t happen before 2025.
  • Minimum contributions shouldn’t be increased further - instead the government should look at how to get people to boost their contributions voluntarily when they’re able to do so.
  • The potential to pay more into a pension and receive a matching contribution from an employer could be an attractive incentive. Previous HL analysis shows as many as six in ten people could be encouraged to boost their contribution if this arrangement were available, so we’d welcome a further study to see the potential impact of these arrangements.
  • Such arrangements could be popular, as employees only increase contributions as they need to. And employer contribution increases are targeted towards those who value them.

In our ‘Five to Thrive’ approach, building adequate rainy-day savings is identified as an important step in household resilience. This should be prioritised before employees begin to think about putting additional money aside for later life.

Our full Five to Thrive framework can help you, as an employer, identify ways in which you can guide your workforce to a more financially resilient future.


If you’d like more information about shaping employees’ financial education and benefits, please get in touch with a member of our team to find out more.

About the HL Savings and Resilience Barometer

In partnership with Oxford Economics, the HL Savings and Resilience Barometer measures the financial resilience of the nation every six months, to see whether we are getting stronger or facing bigger challenges.

It is structured around the five pillars of financial behaviour that are fundamental in order to balance current and future demands, while guarding against risks. These are: controlling your debts, protecting your family, saving for a rainy day, planning for later life and investing to make more of your money.

The Barometer is unique because instead of looking at specific aspects of our finances in isolation, it draws together 17 data points from a number of official data sets, across these five pillars, to provide a holistic measure of the state of the nation’s personal finances.

The aim of our work in this area is to help to promote awareness and understanding, inform the debate, and ultimately help improve the decisions individuals and policymakers make to improve financial resilience.


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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in. These articles are intended for employers and HR professionals, not for individual investors.

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