As we approach the fifth anniversary of implementation of the Government’s Workplace Pensions Reform – better known as Automatic Enrolment – it is easy to argue the case for success.

The vast majority of employers now offer their employees a value for money pension scheme into which employers and employees contribute. Those that haven’t yet got a scheme in place, the remaining micro employers, will be swept up by the end of this year. The hold-outs who refuse to comply with the law will be sought out and identified by The Pensions Regulator and, whether by cajoling or legal action, will be dragged kicking and screaming into the 21st century world of pension provision.

More employees than ever are now making some provision for their retirement. Scottish Widows’ Retirement Report 2017 Adequate Savings Index – just trips off the tongue, doesn’t it? – published this week, tells us a very impressive 80% of 22 to 29 year olds are now saving into a pension, half of them as a direct result of Automatic Enrolment.

What’s not to like?

It’s less than 12 months until the first increase in minimum contributions, as laid down in the original legislation. The current minimum overall contribution is 2% of salary, of which 1% must come from the employer. Many schemes are set up on this basis. From April 2018, the overall minimum rises to 5% of salary, with 2% coming from the employer. By definition, the employee rate must rise from 1% to 3%, assuming the employer’s share is only the regulatory minimum.

How many of the 80% of 22 to 29 year olds – not forgetting those older savers who have been automatically enrolled – have put up with being in a pension scheme simply because the amounts involved aren’t a burden? And, conversely, how many will stop contributing after April 2018 because their required share has tripled and, suddenly, it becomes noticeable?

Those that do manage the April 2018 increase will be faced with another rise in April 2019 when the overall minimum rises to 8%. With a required 3% from employers, that leaves employees needing to find 5% of salary for pension.

Scottish Widows’ Report says only 58% of savers are committed to saving in pensions after April 2019. That is not to say 42% are going to stop saving. But it does say that 42% will be considering their position.

One of the main problems of the Automatic Enrolment legislation has always been this required level of minimum contribution. What does this minimum contribution represent? It’s not the amount required to produce an adequate/acceptable income. Scottish Widows say the figure required here is 12% of salary per year over a working lifetime (and only 56% of people are saving at this level or above). So, is it like the 5 a day of fruit and veg where all the experts agree it should be more but the Government decide the population just won’t accept the higher number so compromise at a lower, more universally acceptable, level on the basis that doing something is better than doing nothing?

We have the framework in place to help people save for a decent future. What is needed now is education. Some of that should come from Government (presumably the return of Workie, the giant blue monster, to start promoting not just the idea but actual numbers – a sort of Workie 2: The Pension Strikes Back) but a lot will be needed from employers. The Government has increased the tax relievable amount for pension education to £500 per employee per year so it will be more than interesting to see how many employers make use of this.

No doubt, early 2018 will bring a raft of numbers from the DWP telling us what a success Automatic Enrolment has been. In truth, we are a long way off knowing that yet. But we are in a position where a success can be made of it. It’s just that the hard part hasn’t really started yet.

Copyright Richmond House Group 2017