Since the coalition came to power in 2010, Steve Webb has been charged with the task of implementing auto-enrolment (AE). Helen Morrissey spoke to the pensions minister about the first year of AE and further challenges.
We’re now a year into auto-enrolment (AE). How do you feel that it’s gone so far?
I think the first year has been an extraordinary success. Many people were sceptical that employees would reject this and that firms would not cope – and, in fact, what we’ve seen is well over a million people who are in workplace pensions this year who were not this time last year.
Given that we’ve had decades of decline, that’s a tremendous achievement and I think employers, the pensions industry and – dare I say it – the government all deserve a bit of credit, really.
I call this a quiet revolution. There’s been almost no fuss in the wider media about this and yet we’ve done something extraordinary. We’ve taken money out of a million people’s pay packets, essentially without their permission, and largely they’ve said, ‘Thank you’.
The emotion I think people experience with automatic enrolment is relief – this is something people kind of knew deep down that they needed to do but it was complicated and it was difficult. They didn’t know how to do it.
Now it’s been done for them and, as a bonus, the government is putting money in and the employer is putting money in, and they feel positive about it. I think we couldn’t really have wanted it to have gone better.
That seems to have shown in recent opt-out figures. What do you think of such low opt-out rates so early on in the process?
The early signs on opt-outs are very encouraging. Our own research suggests that a fraction under 10% have opted out and that’s varied even within those relatively low numbers, so some firms have gone the extra mile.
They have put a lot of effort into workplace communications and they have developed their communications over a period of months, getting people to think about finances before pensions, so a lot of innovation has gone on which is very encouraging.
At one level we shouldn’t get carried away, because clearly it is going to be harder with smaller firms that won’t have the resources to do that. On the other hand, some of the people who are being auto-enrolled in the big firms have already been in pensions; they joined the pension scheme when they joined the firm and have opted out and then they’ve been put back in again through AE.
So you might think they weren’t a very fertile ground, but even among those people they’re coming back into pensions, so I think we do have reason to be cautiously optimistic.
There’s been a lot of emphasis on charges. Are there any plans to cap charges for AE schemes and, if so, what would be a reasonable level?
At the moment, there is very little legal minimum safeguards as to what you’re enrolled into and we have to deal with that. We need to see that people are getting good value for money.
We’ve said that we will be consulting on what makes for a quality workplace pension scheme for auto-enrolment and charges are clearly an important part of that. So we will consult on, for example, whether there should be a cap on charges.
