Research and analysis

Summary of final report: Automatic enrolment: qualitative research with newborn employers

Updated 3 July 2020

By Andrew Wood, Kate Downer, Alex Belcher, Dr Adele James and Diksha Patel.

1. Background

This report comprises the final results of a research study into the experiences of newborn employers and their workers when implementing the automatic enrolment workplace pension reforms. It provides an update to the interim report of this study, published in February 2019.

The workplace pension reforms require employers to automatically enrol all eligible workers aged between 22 and State Pension age (SPa) into a qualifying workplace pension scheme. Workers have the option to leave the scheme (‘opt out’) within the month-long ‘opt-out period’ that follows their enrolment.

Once they have enrolled eligible workers into a workplace scheme, employers must make a contribution to those workers’ pension savings. Until 5 April 2018, the minimum contribution rate was set at 2% of the qualifying earnings of each worker who is automatically enrolled, with at least 1% provided by the employer. It then rose to a total of 5% in April 2018, with at least 2% contributed by the employer. On 6 April 2019, the contribution rate rose for a second time to a total of 8%, with at least 3% contributed by the employer.

Automatic enrolment was introduced over a 5-and-a-half year period, from October 2012 to February 2018. Between October 2012 and June 2015, automatic enrolment became mandatory for large and medium-sized employers. Between June 2015 and May 2017, this was extended to small and micro employers. Employers who took on their first workers between 2012 and 2017 were required to implement automatic enrolment by February 2018. This group is referred to in this report as ‘2012-17 newborns.’ Since October 2017, all employers taking on their first workers have been required to implement automatic enrolment immediately: these employers are referred to in this report as ‘instantaneous newborns.’ Collectively, those employers who took on their first eligible workers after 2012 are referred to as ‘newborn(s)’ within this report.

Throughout this staggered roll-out of automatic enrolment, the Department for Work and Pensions (DWP) has commissioned waves of research to understand the views and experiences of employers and employees as it became relevant to them. The current wave of research seeks to explore the views and experiences of the most recent cohort of employers to implement automatic enrolment: newborn employers.

2. Scope of this research

This is the final report for the research study consisting of 2 strands:

• qualitative depth interviews with 70 employers, conducted with at least one person who had been involved in the implementation of automatic enrolment.
• qualitative depth interviews with a mix of workers who had remained in these employers’ schemes after being automatically enrolled, and workers who had chosen to opt out of the schemes after being automatically enrolled. A total of 83 workers were interviewed: 58 who remained in their employer’s scheme, and 25 who opted out.

The 70 employers covered by this study each fell into one of 3 categories:

• newborn employers who came into existence between 2012 and 2017, and were given a staging date by the regulator between October 2017 and February 2018 (‘2012-17 newborns’). We interviewed these employers in summer 2018. These employers implemented automatic enrolment before April 2018, when the minimum contribution rate was set at 2%, with an employer minimum contribution of 1% and an employee contribution (if the employer pays the minimum) of 1%. In April 2018, contributions rose to a minimum of 5%, with an employer minimum contribution of 2%, and 3% from the employee (if the employer paid the minimum amount)

• instantaneous newborn employers, who came into existence after October 2017 and whose automatic enrolment duties began between March and August 2018, as soon as they employed their first eligible worker (‘2018 instantaneous newborns’). We interviewed these in autumn 2018. The majority of these employers implemented automatic enrolment after the first increase in minimum contributions in April 2018, to a minimum of 2% from the employer and 5% in total

• instantaneous newborn employers whose automatic enrolment duties began between February and May 2019, as soon as they employed their first eligible worker (‘2019 instantaneous newborns’). Approximately half of these employers’ duties started in either February or March 2019, before the final rise in contributions in early April 2019; and for the remaining half, after this rise. These employers were interviewed in summer 2019.

Due to the nature of the sample, in regard to size and structure, the findings in this report should be treated as indicative rather than representative of the target population.

3. Main findings

3.1 Employers’ and workers’ attitudes towards automatic enrolment

Employers typically viewed automatic enrolment as a positive measure in helping workers save more for retirement, and acknowledged its importance in the context of an ageing society. Occasionally they questioned whether the responsibility for this should fall on small employers, but they tended to accept their duties as simply another task that falls to them as an inherent part of setting up a business.

Whether or not they remained enrolled in the scheme, most workers saw the responsibility of generating income for retirement as split between the state and the individual, but with most responsibility falling to the individual. A few workers saw it as being wholly the individual’s responsibility.

3.2 Employers’ use of information and advice in regard to automatic enrolment

The individuals responsible for implementing automatic enrolment had typically been aware of it months or years ahead of joining their current employer. They had often held a senior role both at this workplace and at their previous employer, and had similar responsibilities at both. In many cases, this meant that they had been part of the conversation about how to implement automatic enrolment at their previous workplace, occasionally having sole responsibility for it.

Whatever their level of previous experience, it was rare for employers to engage in extensive information-seeking: they usually sought just enough information to become compliant, and little beyond this. The process was almost always prompted by a letter they received from The Pensions Regulator (TPR), directing them to TPR’s website. On reviewing the information there, they assessed the size of the task involved, and then typically decided either to handle the implementation process themselves or outsource it to a third party. Most 2019 instantaneous newborn employers outsourcing the process tended to do so due to lack of time, rather than lack of ability: their focus was on setting up their new business.

Employers who already had a relationship with an accountant, payroll provider, or occasionally an independent financial adviser (IFA), tended to request support from them. The advice they received tended to be limited if the employer was not prepared to pay to delegate the process to them. A few employers also sought information through personal connections, such as family members or colleagues who had prior experience of implementing automatic enrolment.

Even the employers who decided to ‘go it alone’ undertook relatively limited research, usually focussed on a visit to their potential provider’s website and skim-reading around the topic online more widely. In a few cases, employers spent longer gathering information on the rules for compliance. Employers who were less confident or less experienced with automatic enrolment, were occasionally concerned about ensuring that they had correctly understood the steps they had to take to comply. These employers usually spent longer on the regulator’s website finding the answer to a particular query.

3.3 Employers’ experiences of planning and implementing automatic enrolment

Most employers found the cost and time involved in implementing automatic enrolment to be lower than they had anticipated. Employers who had previous experience of training in payroll, bookkeeping or pensions, or who had a generally proactive approach to administrative tasks, tended to feel confident enough about implementing automatic enrolment to handle everything themselves.

Employers who felt less confident, or who decided their time was better spent on other tasks associated with setting up a business, were more likely to outsource the implementation process. Those with an ongoing relationship with an intermediary often asked them to take on the monthly administration of automatic enrolment as part of that relationship, but in rare cases employers were also willing to pay an ad hoc fee for consultative support with understanding their duties and choosing a provider.

As new businesses, the newborn employers in this study were typically selecting the first pension scheme to be offered at their workplace. Even so, they usually spent only a little time researching potential providers. The typical decision-making process employers followed was often to choose National Employment Savings Trust (NEST) – the provider best-known to employers – in the first instance, unless they were prompted to do otherwise. This was usually triggered by a recommendation from an accountant or independent financial advisor, although online forums, family members and local business contacts were also sources from which newborns received provider recommendations.

3.4 Workers’ experiences of automatic enrolment

Workers who remained enrolled typically spent little time considering the idea. It was common for workers to describe remaining in the scheme as an easy decision, since they perceived the employer contribution as ‘free money’. Although workers often said they wanted to save more for retirement, very few were contributing more than the minimum rate to the pension.

Workers who opted out had usually given the decision more thought. Since it was very common for workers to have already been automatically enrolled at least once before at a previous workplace, many had decided whether or not to remain in the current scheme before they had even started working at the newborn employer.

It is worth noting that 12 of the 25 opt-outs we interviewed were aged over 50. The most common reason that workers over 50 gave for opting out was the feeling that they had already built up – or would have built up by the date they retired – sufficient provision elsewhere.

3.5 Post-setup challenges and reactions to the increases in minimum contributions

Completing the declaration of compliance was not typically seen to be a challenging task for the newborn employers to whom we spoke. It was also rare for newborn employers to express any concern about the expected burden to be placed on them by the ongoing administration of automatic enrolment.

Employers were typically aware of both the April 2018 and the April 2019 increases in contributions, and felt relatively neutral about the rise. Generally, employers said that they were confident about being able to pay these new rates, and were relaxed about the cost, which they perceived as a small proportion of their overall costs.

Employers were occasionally somewhat concerned about the impact of pension contributions upon general cash flow. However, newborns did not typically identify any specific cut-backs that they felt they needed to make, in order to afford the ongoing cost of administering automatic enrolment.

Very few workers, in either 2018 or 2019, had been aware of future increases to their automatic enrolment contributions before taking part in an interview. However, their reaction to this news tended to be either neutral or positive. Some were pleased to have the decision to save more for their retirement made on their behalf. A small number interviewed in 2018 expressed some degree of concern about affording the future increase. In 2019, by contrast, the higher contributions played little or no role in workers’ decision to remain in or opt out, or in influencing their perception of its affordability.