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Risks of auto-enrolment revealed

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Research reveals pension auto-enrolment risks for employers, for employees and for the economy.

In the past four years, provision of workplace pensions has declined from 41 percent of private sector employers to just 31 percent. 47 percent of private sector employees were eligible to join a workplace pension but have not done so 74 percent of employers said they expect their pension costs to increase following auto enrolment 42 percent of employers say that they will absorb any increase in pension costs through lower wage increases 83 percent of employers said they would seek information or advice about understanding the legislation. Of those intending to seek advice, 63 percent will talk to an IFA and 83 percent will talk to an accountant. Just three percent of employers have put in place a plan to deal with auto enrolment, 34 percent of employers said they would wait until just before or on their deadline to deal with their auto enrolment requirements and 45 percent of employers with no pension provision have said they will use NEST.

DWP’s research shows that there has been a general disengagement from pensions in the private sector in recent years, with workplace provision declining and with many eligible employees choosing not to participate. Auto enrolment does not guarantee ‘buy-in’ on the part of employers or employees. Tom McPhail, Head of Pensions Research ‘These reforms are vital for the rebuilding of our pension provision but they aren’t enough on their own and could yet end in failure. Employers and employees alike need to be actively encouraged to engage and to plan ahead. Without a concerted effort to ensure that employers and employees are well prepared and have bought in to the importance of the reforms, it could all still go horribly wrong. We are particularly concerned that employers need to be planning ahead, if they leave their planning until the last minute they won’t be able to get advice because there won’t be the advisory capacity available to deal with them.’

The vast majority of employers have not yet put in place a plan to deal with auto-enrolment and a substantial proportion intend to leave it until the last minute. Most employers intend to take advice from either an accountant or a financial adviser. With employers expecting costs to increase and two fifths of them planning to pass the costs on to employees in the form of reduced wage increases, there is a risk that efforts to save for the future could act as a drag on economic recovery in the short term. Many people have suffered a fall in their standard of living in recent years; auto enrolment could extend the pain.

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