Assessing the key challenges in DC

October marked a significant milestone in DC: five years since the beginning of auto-enrolment.

In this paper we examine what auto-enrolment has achieved so far and review the behavioural and structural challenges that remain for savers and schemes. We also explain why we think next year’s phasing of contributions is unlikely to result in a significant increase in opt-out rates, and discuss how pension schemes can empower their members to meet these pension challenges head on.

Auto-enrolment has brought millions of employees into private pensions for the first time: workplace pension membership rates among eligible private sector employees of medium and large employees increased dramatically from around 50% in 2012 to 80-90% in 20161. There are now over six million private sector employees enrolled in defined contribution schemes.

At the start of auto-enrolment there were fears that optout rates would be high, but this hasn’t materialised. As an example, the current opt-out rate within LGIM administered schemes is around 9%.

Awareness of auto-enrolment is also at very high levels, with more than 80% of employees interviewed knowing about auto-enrolment in a recent Office for National Statistics survey2. This has risen dramatically over the past five years.