Auto-enrolment. But into what?

We have just reached the point at which new employers need to be auto-enrolment (AE) compliant from the first day they have an employee.

Five years into the UK's biggest pensions experiment, we are reaching the end of the beginning. Millions of people have started saving in pensions for the very first time.

For many, those contributions are a relatively small, but essential, first step on the road to increased self-sufficiency in retirement. But, lest we forget, the minimums to be paid increase over the next 20 months.

Let's look at those increases. Below is a table of Tier 1 contributions from the Pensions Regulator's website. It confirms that minimum employee contributions will increase five-fold over the next 20 months, at least where full basic salary is used for pensionable earnings. Millions of people are paying contributions at these levels and millions of people will be asked to pay five times what they have been paying for the past few years.

Even in plans with more generous designs, many will ask employees for higher contributions over the coming months. If we are going to ask employees to pay higher contributions, we have to wonder where that money is going to come from.

What do people stop spending on when they are auto-enrolled? Do they stop spending?

We don't really know what people might have given up, but we can take a guess at whether people stopped spending. Let's look at how much people owe in consumer debt; now and back in 2012. It's not a pretty picture:

This data comes from the excellent archive at the Money Charity. This is all types of consumer debt - credit and store cards, overdrafts, car loans and other unsecured loans. It doesn't include mortgages.

The message is clear - the average Briton's consumer debt is around 20% higher now than it was five years ago.

I'm not saying for one second that all this debt is down to AE. Inflation and wage stagnation will also be major factors. But it would be naive to believe that AE has played no part in producing this picture.

Whatever the reasons for the increase in personal debt, this is the context in which we are asking people to pay more to pension than they are used to. This is the context in which we are asking people to give up other spending. This graph suggests the average UK adult may struggle to pay additional pension contributions, without incurring further debt.

Let's try a thought experiment. What would you do if you found out that a regular direct debit had dramatically increased? Who would you 'blame' for the increase? Yourself, or the people who deducted the money from you? Would you trust that product again?

How about we look at it another way. What would you do if you were told, in advance, that a bill was going to increase that quickly? If you were told how that might benefit you? If you were given some help to address other issues that you might be facing?

Isn't that a very different experience to finding out after the event that your pay packet is lighter this month?

To avoid large swathes of employees swearing off pensions for life, we may need to communicate carefully.

Our material may need to reflect that pension is only one facet of an employee's financial reality and perhaps not the most pressing one. We might also need to offer relevant benefits to address the issue of debt if we want to stop debt distracting and demoralising employees.

If we don't act, and inertia does the job expected of it, will we be auto-enrolling people into pensions, or debt?