Auto-enrolment has transformed saving and new regulations will help the pensions industry keep up.
In 2012, pensions saving ebbed to a new low. Just 42 per cent of eligible private sector workers were participating in a workplace pension.
Just six years on, that figure has soared to 81 per cent. The impact of auto-enrolment has been seismic.
Beneath those headline numbers, there are further positive trends with the young, low-earners and women among the groups at the forefront of the saving revolution.
Seventy-seven per cent of eligible 22-to-29 year olds working in the private sector were saving into a workplace pension in 2017. For context, only 24 per cent of this group were saving into a workplace pension in 2012, prior to auto-enrolment.
In the private sector, the proportion of people earning between £10,000 and £20,000 who are participating in a workplace pension has increased from two in 10 in 2012, to more than seven in 10 today. Among eligible women in the private sector participation rates have doubled, increasing to four out of five eligible female employees.
More than 9.8 million people have been automatically enrolled into a workplace pension so far, contributing to the £90bn saved into workplace pensions across the public and private sectors in 2017 alone.
Auto-enrolment has brought a new generation of young savers into pensions who will have different demands and interests when investing. Younger, millennial savers are increasingly concerned with environmental and social impacts of their consumer and investment decisions, with research showing that 86 per cent say they are interested in socially responsible investing.
Rules to boost transparency
New regulations recently laid in parliament will increase transparency in the pensions industry by requiring pension trustees to report to pension scheme members on how their investment strategies are affected by environmental, social and governance issues.
This will help millions of pension scheme members understand how their money is invested and help to build a better world for future generations by ensuring these funds are more likely to be used to build a sustainable world.
This would also mean that for the first time, trustees of defined contribution schemes will be required to publish information about how they will take account of issues such as climate change, corporate governance and social responsibility, and report annually on how they have done so.
By increasing transparency within the pension industry we can demystify the pensions landscape and engage this new audience, helping young savers understand where their money is going.
Under the changes, trustees will remain free to set the investment strategy they think is right for their members. However, if they disregard long-term financial risks and opportunities arising from the environment, social issues or corporate governance, they will need to justify why this doesn’t harm member outcomes.
The huge success of auto-enrolment has revolutionised the pensions landscape, with a new generation increasingly engaged in putting money away for their futures.
These regulations will help this new generation understand where their money is going when they save.
Guy Opperman is Minister for Pensions and Financial Inclusion