Research and analysis

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

Updated 3 July 2020

By Andrew Wood, Kate Downer, Dr Louise Amantani, Alex Belcher and Dr Adele James.

Background

The workplace pension reforms require employers to automatically enrol all eligible workers aged between 22 and State Pension age 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; and will rise again on 6 April 2019, to a total of 8%, with at least 3% contributed by the employer.

Automatic enrolment has been introduced over a five-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. Over June 2015 to 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 has commissioned waves of research to understand the views and experiences of employers and employees as they came into scope. 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.

Scope of this research

This is an interim report for research 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 – so far we have interviewed 43 employers
• 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 – so far we have interviewed 49 workers, 37 who remained in their employer’s scheme, and 12 who opted out

The 70 employers covered by this study each fell into one of 2 categories:

• newborn employers who came into existence between 2012 and 2017, and were given a staging date by the regulator from October 2017 to February 2018 (‘2012-17 newborns’), we interviewed these employers in summer 2018 – these employers implemented automatic enrolment before April 2018, when the total minimum contribution rate was set at 2%
• newborn employers, whose automatic enrolment duties began as soon as they employed their first eligible worker, between March and August 2018 (‘instantaneous newborns’), we interviewed these in autumn 2018 – the majority of these employers implemented automatic enrolment after the planned increase in minimum contributions in April 2018 to 2% for the employer and 5% in total

We will complete this research study with a further wave of interviews with instantaneous newborns in summer 2019. These employers will have experienced the final planned increase in contributions in April 2019, to 3% for the employer and 8% in total. This wave of interviews will be included in the final version of this report, due later in 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.

Main findings

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.

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 often had held a senior role both at this workplace and at their previous employer, and often had similar responsibilities at both. This meant that they had often been part of the conversation about how to implement automatic enrolment at their previous workplace and occasionally had had sole responsibility for this.

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.

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 the National Employment Savings Trust (NEST) – by far the best-known provider – 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.

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 9 of the 12 opt-outs we have interviewed so far were aged over 50. Most felt they had put a lot of thought into their retirement plans, and while none were planning to retire in the next year or 2, some were hoping to retire in the next 5 to 10 years. Opt-outs were typically either paying, or had paid off, a mortgage, and typically were still working full-time. The most common reason that workers described 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.

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.

Although employers were – occasionally – somewhat concerned about the impact of pension contributions upon general cash flow, 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.

Employers were typically aware of both the previous April 2018 and the future 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.

Very few workers were aware that their automatic enrolment contributions would be increasing in 2019, but their reaction to this news tended to be either neutral or positive. Some were pleased that the increased rate would help them save more for retirement. Very rarely, workers expressed some concern about affording the planned increase. Whether or not the worker had remained in the scheme, it was very rare for the rise in contributions in 2019 to affect their current intended decision.

Read the full report Automatic enrolment: qualitative research with newborn employers.