About Auto Enrolment
The road to automatic enrolment began in 2005 with the publication of the Turner Report into the state of Britain’s pension savings by the Pension Commission. Its findings made for grim reading. The report estimated approximately 9 million people were saving at a rate that would not provide a comfortable retirement.
The years that followed have provided little to improve the picture. A combination of rising life expectancy and the effects of the recession post-2008 saw that number creep up to 11 million. In fact, the Pension Regulator’s most recent commentary and analysis report reinforces the need for change highlighting that in 2010 a 65 year old man with a pension fund of £100,000 could have expected to obtain a Retail Price Index-Linked annuity rate of 4.25% on average compared with 5.18% in 2005.
Part of the reason for this increase was consumer’s switch to short term financial strategies to cope with stagnating wages, reduced disposable income, and a general disillusionment with the returns from pension policies.
The Turner Report made two major recommendations. The first was a rise in the retirement age, and the second was the creation of a default scheme in the form of a workplace pension into which people would be enrolled unless they actively chose to opt out.
These recommendations received strong cross party support and were accepted by the Government and led to the aforementioned Act. The auto enrolment provisions place a duty on employers to provide a workplace pension scheme into which employees are automatically enrolled unless they chose to opt out. Minimum contributions are set initially at 2%, rising incrementally to 8% by 2018, with a minimum employer contribution of 3%.
Auto Enrolment Implementation
Implementation of the Act is a gradual process. It began in in October 2012 for larger employers with more than 250 employees, but now the real test begins as it starts to be rolled out across those employers who will be most affected – medium and small businesses. If you’re a business with between 90 and 249 employees you should have completed your auto enrolment implementation by now. Firms with less than 90 employees will have staging dates up until and including February 2018.
The Pension Regulator’s initial report into auto enrolment implementation, published in July 2013, revealed that the majority of employers were aware of the changes and significant progress had been achieved. Over 1 million people had been enrolled into qualifying pension schemes and over 1,000 employers had successfully completed registration.
However, as the deadline for many smaller firms approaches various independent studies suggest businesses are alarmingly ill prepared. A survey by Autoenrole SME on over 200 businesses with between 62 and 249 staff found that 58% had yet to set up an auto enrolment scheme ahead of the first staging date. Despite many attempts over recent years to alert businesses to these changes it seems that, for many, it simply has not got through. With severe penalties in place for non-compliance the effects on small firms could be painful.
If you are having real difficulties complying with auto enrollment in the time schedule set down by Government you may consider to request a three month postponement (subject to certain conditions) and find some expert help.
You can find more about staging dates or postponement on our Frequently Asked Questions >.