Automatic (enrolment) For The people

John Griffin

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Now that auto-enrolment is a year old, and following publicity featuring high-profile figures like Karren Brady and Theo Paphitis, even the Man On The Moon must be aware that “something” is happening in the pensions world.  So much pensions news seems negative these days, with those in the pensions business now regarded by the general public as being as reputable as lawyers or politicians but, for a change, recent news has been more positive.

The figures appear impressive: 1.6 million more savers are in workplace pensions; less than 10% of employees have chosen to opt out (initial estimates had this at 30%).  But we shouldn’t get carried away, according to some pensions “experts” (the usual suspects, the “ It’s The End Of The World As We Know It” naysayers) and it’s true, there is still a long way to go.  Only the biggest companies have started enrolling workers into new workplace pensions since October 2012; medium-sized companies will do so from April 2014, those with fewer than 50 employees in June 2015, with all remaining eligible employees enrolled by2018. 

So what have we learned from the first year? 

Firstly, apathy can be a good thing; it used to be a reason for people not joining a scheme, now it’s probably a reason for not opting out, and those who do want to opt out have only a month to do so.

Secondly, and not surprisingly, minimum contributions will probably not be “enough”; initial minimum contributions of 2% – rising to 8% by 2018 – are unlikely to provide people with what they think they will need, or expect.

In truth, not many expected auto-enrolment to turn its army of savers into Shiny Happy People, but it surely has to be a positive step.  Anyone aged 22 or over, earning more than £9,440 a year, and in employment for more than three months, will be enrolled in a scheme.

A knock-on effect of the lower than expected opt-out rate is, of course, increased costs for employers.  Almost inevitably, as smaller companies reach their staging dates, they will have fewer resources to throw at auto-enrolment so the costs incurred may have a relatively greater impact on them.  It will be interesting to see what happens as auto-enrolment begins to encompass smaller companies.

With current contribution levels, no-one should expect a bumper pension, and no-one is claiming that auto-enrolment is a pensions panacea, but it can’t hurt (though Everybody Hurts sometimes – sorry, had to get that one in too).