U.K. auto enrollment to catch more participants as government maintains trigger level

The U.K. will hold steady its automatic enrollment trigger level for corporate retirement plans for the 2024/25 financial year, bringing more participants into defined contribution plans.

The Department for Work and Pensions said in a news release it will hold its trigger of £10,000 ($12,750) in annual earnings. Due to the decrease in real-terms value due to inflation, and a subsequent spike in wages, maintaining the trigger will catch 15.8 million U.K. workers in the auto-enrollment net next year, up from 15 million in 2022 — the latest available figures show.

According to the DWP, plans to expand auto-enrollment such as scrapping the lower earnings limit and reducing the starting age to 18 from 22, alongside Mansion House pension reforms, could help see the average earner's pension increase by nearly 50% when saving over a career, while a minimum wage worker could see their pension pot increase by nearly 90%.

The DWP also published research collected from interviews with 119 of the U.K.'s low earners (those earning from £5,000-£19,000 a year) in relation to retirement plans and the auto-enrollment program.

Findings from the research included that some low earners opted out of retirement plans due to a perceived need to prioritize short-term budgeting as a result of rising costs of living. Misconceptions from individuals that their benefit entitlement might be negatively impacted if they started saving into a retirement plan also led some to decide against doing so.

"The decision to maintain the lower earnings trigger for auto-enrollment will ultimately see more people enrolled in workplace pension schemes as their salaries rise which is good news," Damon Hopkins, head of defined contribution workplace savings at consultancy Broadstone, said in an emailed statement. "However, supporting research documents released by the DWP today expose the issues that lower earners face in building up adequate retirement savings. It reveals the two key issues facing the country's pension system at present — engagement with and understanding of how pensions work and the macroeconomic impact on disposable incomes."

Hopkins also called on employers to support the financial well-being of their employees through greater financial education and providing access to solutions which improve both short and long-term financial security.

A DWP spokesperson said in an email: "Auto-enrollment has already helped an extra 10 million people save for their futures, with £116 billion saved in 2022 and the number of eligible private sector low earners now saving for a pension risen from 17% in 2012 to approaching 80% today.

"We are always looking at ways we can help the record number of U.K. pension savers make informed choices – this includes free guidance via our MoneyHelper and Pension Wise services."