Pension saving has increased by £2.5 billion a year by April 2015 as a result of auto-enrolment, according to research by the Institute for Fiscal Studies (IFS).
Its study, which analysed data from around 500,000 jobs between April 2011 and April 2015, also found that auto-enrolment has increased pension participation among eligible employees by 37 percentage points. By April 2015, 88% of private sector employees were members of a workplace pension scheme.
Between 2012 and 2015, an additional 4.6 million private sector employees joined a workplace pension, taking pension membership figures from 5.4 million to 10 million. The study estimates that 4.4 million of the 4.6 million increase was a result of auto-enrolment.
The study found that auto-enrolment has increased pension membership by over 50 percentage points in particular employee demographics,including employees aged between 22 and 29, those earning between £10,000 and £17,000, and individuals who have been with their current employer for less than a year.
Employees brought into a workplace pension through auto-enrolment tend to have low levels of contributions, with a 24 percentage point increase in the proportion of employees contributing the minimum amount. However, auto-enrolment has also increased the number of employees who are contributing more than the minimum contribution rate, with the proportion of those contributing 5% or more of their total earnings into a workplace pension increasing by 7 percentage points.
The research also found that auto- enrolment has also had a knock-on effect on employee populations who are not targeted by the policy, such as employees under the age of 22, employees over the state pension age, employees earning less than £10,000 a year, and employees who have just joined their employer. Across these groups, pension memberships rates increased by 18 percentage points.
Jonathan Cribb, senior research economist and report author at the IFS, said: “Automatic enrolment has been very successful in boosting membership of workplace pensions. This has been particularly true of younger employees aged 22 to 29 and relatively low earners on between £10,000 and £16,000 a year.
“Significant numbers of those not targeted by the policy have also been brought into workplace pensions, such as those earning less than £10,000. The story of automatic enrolment is certainly a case of so far so good. A key issue is whether those brought into workplace pensions at low contribution rates will remain in when minimum contribution rates start rising.”
Tom McPhail, head of retirement policy at Hargreaves Lansdown, said: “Auto-enrolment is proving to be one of the most successful policy interventions of the 21st century so far. It has already increased the number of people saving for retirement by 6.7 million and is projected to eventually boost annual savings by £15 billion a year; this is powerful stuff.
“However there is still a huge amount more to be done and next year’s review by the [Department for Work and Pensions] will set the agenda for the next phase. If we don’t keep moving forwards with the reforms, there is a risk that much of this initial good work could yet be wasted.”