Millions missing out on pension scheme

Many workers don't qualify, while others are failing to enrol

Figures announcing the millionth worker automatically enrolled into a workplace pension have also revealed that huge swathes of the working population have already been left behind.

Introduced last October in a bid to reverse the decline in pension saving, the largest firms have started signing up staff to the nationwide scheme, with medium and small-scale companies set to follow suit between now and 2018.

Announced with much fanfare by the government, Steve Webb, the Minister for Pensions, described the millionth sign-up as "a real landmark in this quiet revolution". "The money that workers save is being matched by contributions from their employers and topped up by tax relief, helping them put money aside for their retirement," he said

But while it is a positive move for the million-plus people now saving more for older age, the same data shows that this number is dwarfed by the 1.7m workers who haven't been signed up because they don't qualify. With only 1,153 companies actively involved so far, 3.8m workers or more are at risk of missing out on valuable employer contributions.

Those who earn less than £9,440 and are under 22 or over the state pension age don't qualify for the scheme automatically and will need to actively opt in, warns Laith Khalaf, head of corporate research for financial adviser Hargreaves Lansdown.

"Automatic enrolment is a vitally important project, but it is not a silver bullet. Millions of part-time workers are going to be overlooked because they don't earn enough. Likewise, the self-employed are excluded.

"There is still a pressing need to foster a savings culture alongside auto-enrolment, and to provide a decent level of state pension."

It is hoped that the scheme will catch up with the under‑22s as they grow older, but for those over the state pension age, auto-enrolment simply can't help them. Meanwhile, women workers, who make up three- quarters of British part-time workers, are also at risk of falling through the gap.

Of the 6.7m part-time workers in the labour force, about 3.8m of them earn under £9,440 and consequently won't be automatically enrolled into a pension, though they can opt in. An estimated 1.8m of these workers could benefit from an employer contribution if they were to opt in to their company pension scheme. Any worker earning over £5,668 can opt in to a pension and their employer is also obliged to pay in. Employers must inform eligible staff of the right to opt in to the company pension and get an employer contribution.

For each £100 a worker pays in under auto-enrolment, the government adds £25 and their employer would add £75. In other words, for a £100 personal investment £200 is paid into a pension – doubling your money instantly.

"An estimated 1.8m part-time workers will be eligible for an employer pension contribution under auto-enrolment, but only if they opt in to their company pension scheme," Khalaf adds.

"They should consider doing this. An employer contribution is an extremely valuable savings boost and should not be given up lightly."