As auto enrolment has become business as usual, evidence suggests that the number of people opting out of their employer’s schemes is fewer than expected. If your staging date is in the future, it is possible you have under budgeted for auto enrolment.
In 2012 the Department of Work and Pensions published a report entitled: Attitudes to Pensions: The 2012 survey. The survey suggested that 15% of those enrolled in a workplace pension scheme would opt out, with a further 14% unsure whether they would stay in the scheme or go down the opt out route.
However, according to the latest DWP report from August 2013: Automatic enrolment opt out rates: findings from research with large employers, the opt out rate has been far lower; at least in bigger companies. Since the introduction of auto enrolment workplace pension scheme, the opt out rate has only been 8%. Far less than what the original DWP survey predicted.
Also, the participation rates in workplace pensions have risen from 36% to 71% since auto enrolment was introduced. Again, this was not really predicted in the DWP survey of 2012.
So What Does This Mean For Me?
To this end, the cost of your employee contributions could be far higher than you have budgeted for if you have been working towards the predicted 15% opt out rate. It is also possible that your third party auto enrolment administrator has been calculating and giving you auto enrolment advice based on an opt out rate of 15%.
This could be a serious miscalculation.
Given that the employer is obligated to make a 1% minimum contribution per employee on ‘qualifying earnings’ rising to 3% by 2018, this may result in a significant additional cost that will eat into your cash flow considerably. Depending on the number of employees you have, you may have to revise your budgets, possibly making drastic changes to cope with this extra demand on resources.
What do I do if my budget cannot cope with the staging date?
If your budget has been set and the staging date is rapidly approaching, you can ask the Pensions Regulator for assistance. In fact speaking to them in the first instance is probably your best option. Though the facts and figures were there from the beginning and it is your responsibility to ensure workplace pensions go through as planned, highlighting the fact you have been working to a DWP report may help you delay a staging date, or at least offer some mitigating circumstances. You can find more information on mitigating auto enrolment by clicking here.
Auto enrolment is a drastic shake up of legislation surrounding workplace pensions, and there is plenty of advice for business owners, much of the territory has yet to be charted and is mostly opinion based.
To learn more about take up rates where auto enrolment is concerned, please click here.