Auto-Enrolment: is it inevitable?

09 March 2022

As governments around the world try and recover from the impact that COVID has had on their economies and potentially face the further challenge of re-basing their economies away from the reliance upon fossil fuels, they still have to meaningfully grasp the nettle of how to fund their citizens in retirement. This will be no mean feat and with OECD increasing its focus on the sustainability of existing State retirement systems, the pressure on governments to introduce alternative or supplementary systems is very likely to increase.

The numbers currently don’t add up and the strain on public finances to provide for ever-increasing cohorts of retirees can only materially be offset by workforces around the globe being better provisioned for by their employers. The trend in Auto Enrolment or “AE” is gathering pace, as governments continue to legislate more comprehensively to try and resolve this issue.

The Australians were amongst the first to legislate for AE, back in 1992 and the UK did likewise in 2012. Whilst Guernsey has committed to the introduction of AE, Jersey is likely to follow suit, as will many other countries in the near-term. The biggest challenge and therefore also potentially the greatest opportunity, is how the pensions industry will continue to innovate to meet the demands of AE systems.

Given the typical profile of an AE system, which usually commences with token levels of contribution, leading to higher levels in due course, the solution will largely be driven by significant levels of investment in financial technology (FinTech) by all participants in this market. Engagement by industry of AE, commercially, at the scale required, is probably not feasible with the technology and processes that many existing providers and advisers currently employ.

Therefore, I would predict that those businesses who are able and choose to invest substantially into the FinTech that facilitates AE solutions, will emerge as the front-runners in this market in the coming years. Furthermore, if AE isn’t inevitable, then the only credible alternative is for governments to substantially raise levels of taxation which, for many Western countries, is already at unpopularly high levels. Given that modern politics usually likes to carve the path of least resistance, leaning on the corporate chequebook is the more likely direction of travel for legislation.

Peter Culnane,

Head of Pensions, Fairway Group