The principle of automatic enrolment could be used by the government to support other savings goals next year, Scottish Widows has said.
According to Pete Glancy, head of pension policy at Scottish Widows, the shaping of an ‘auto-enrolment 2.0’ could be a real possibility in 2021 as the government looks to encourage more people to save following the Covid crisis.
Mr Glancy said: “Momentum behind increasing the financial resilience of UK households will continue, fuelled by the Covid-19 experience.
“The government’s commitment to helping people in Britain own their home will focus attention on the availability and affordability questions, whilst options which replace the ‘Help to Buy’ scheme and which don’t rely on the taxpayer are likely to be explored, including ways to help people build a deposit.
“2021 looks like the year in which the potential of auto-enrolment to support other savings goals, alongside retirement saving will be more formally explored.”
According to official data, more than 10m workers have been automatically enrolled in a pension scheme since 2012 when the rules first came into force.
But Mr Glancy warned that savings levels had to increase from a national average of about 9 per cent of salary if people were to have enough for their retirement.
This could be achieved through more generous employer contributions, encouraging employees to save more or increasing statutory contributions from 8 per cent.
Meanwhile Nest Insight is running a trial of the sidecar savings concept, which Mr Glancy said will be used to inform the next steps of the government’s plans to boost savings in the UK.
The sidecar idea is where a small pot of emergency cash is built alongside an auto-enrolment pension.
According to some industry spokespeople, this could help improve financial resilience without undermining retirement saving.
During the coronavirus crisis there were concerns that savers would opt out of their workplace pensions or reduce their contribution levels in search for extra cash.
In fact the Institute for Fiscal Studies has previously suggested savers on the lowest of incomes should opt out of their auto-enrolment pension on a temporary basis to build up a rainy day fund.
According to the IFS, circumstances in which it could be more beneficial for employees to leave a pension scheme included having high current spending needs or low standards of living.
Meanwhile, in October pensions minister Guy Opperman was looking at ways the auto-enrolment workplace pension system can be extended so that savers can borrow from their pots for a deposit.
But the industry warned the proposals risked making younger savers worse off in retirement.
Some commentators said raiding pensions for a deposit would see people having to start all over again on their retirement savings.
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— to www.ftadviser.com