While the postponement of plans obliging all employers to enrol their employees in workplace pension schemes may help small businesses, it will deter people from saving and shore up future costs
Just occasionally, it is possible to do a piece of research that tests very precisely the direction of public policy.
Last week, the Strategic Society Centre published a major piece of quantitative research we undertook with the Institute for Social and Economic Research (ISER) at the University of Essex. The research – entitled Who saves for retirement? – was supported by Prudential.
We analysed data for around 26,000 UK workers from the first wave of the Wealth and Assets Survey – or ‘WAS’, as it is known.
Our research question was a simple one: what factors determine participation in pension saving?
We distinguished between occupational and personal pension saving, and between men and women.
The fantastically rich data in WAS meant we able to explore the effect of far more factors than previous similar studies.
The regression analysis threw up lots of interesting findings, for example, after controlling for the effect of earnings, age, education, financial attitudes and lots of other factors: women are more likely to save into an occupational scheme than men are; and, being non-white does not reduce the probability of participation.
But the most striking finding of all was the effect of employer contributions on participation in workplace pension saving: the availability of such contributions increases the probability of someone participating by 71%. Indeed, someone could have multiple negative characteristics for pension saving – being male, being behind with their mortgage, having a student loan – but still be more likely than not to save into a workplace scheme if employer contributions are on offer.
For the Department for Work and Pensions, these findings should be very encouraging: they show that forthcoming duties on employers to offer a decent workplace pension with associated employer contributions should be highly effective in boosting participation in pension saving.
But the flipside is that the research shows just how significant the recently announced delay to the implementation of these reforms for smaller employers – together with auto-enrolment – will be.
Let’s be clear: our research shows there is simply nothing else available in the policymaker’s toolbox to encourage individuals into pension saving that is anywhere near as effective as the availability of workplace schemes with employer contributions.
So while delaying these duties may have some effect on small business growth – albeit in ways that are completely unquantified – we can be absolutely sure that this will result in lower pension saving among the employees of small businesses, increasing the number subsequently confronting poverty in retirement.
The factors that may be inhibiting small business growth are likely to be multiple, varied and complex. But whatever is the best way to help small business, Who saves for retirement? provides clear evidence of the likely effect of this delay to pension reform.
James Lloyd is director of the Strategic Society Centre
