New research by the Department of Work and Pensions has revealed that the pension auto-enrolment process hasn’t been as difficult as small and micro business owners feared – despite the fact that few of them had offered their employees a pension before.
A Sensible Solution to Pension Shortfall
The study found that while most employers expected the state to have a smaller role in providing for retirement in future and saw auto-enrolment as a sensible solution, some also worried about the time and cost implications. Many anticipated spending weeks of their time on setting up the scheme for their employees and believed it would cost them as much as £3,000 in associated costs, with a few believing this meant that the very smallest companies should be exempt.
However, the research revealed that most employers were pleased to find the process was much more speedy and inexpensive than they expected. Implementation typically took two to three days across about six months, and cost no more than £500, a figure consistent with data from The Pensions Regulator (TPR), and very few small or micro employers said they had experienced issues in complying on time.
They relied heavily on TPR’s website, especially when first finding out about automatic enrolment, and many sought advice from financial advisers or accountants. Once they had decided on a pension provider, the provider’s own website often became their preferred information source.
Of the 70 employers surveyed, only 12 reported opt-outs (nine had just one opt-out, and three had two opt-outs). Most employees who did opt out tended to be older workers, especially those who already had pension provision in place and were nearing retirement.
There was no noticeable difference within this small sample size between male and female workers or full and part-time workers, and the employees who opted out were found across all industries, employer sizes and regions.
The Future of Auto-Enrolment
The employers surveyed for the study did have an important tip for others yet to roll out auto-enrolment in their company: start your preparations early. In particular, they felt that gaining an understanding of the legislation and its requirements well in advance of the staging date was imperative.
Pensions Minister, Guy Opperman, said:
“Small businesses are the backbone of our economy and their success is vital to this country. That’s why I am so pleased that so many have embraced the challenge of enrolling their staff into a workplace pension, and are setting them on the road to a financially secure retirement.”
However, the Pensions Policy Institute (PPI) say their own research suggests auto-enrolment hasn’t gone far enough; UK employers will be offering contributions of only 37.5% of the minimum employer contribution from 2019. This means they are lagging far behind other countries such as Japan (50%), Denmark (66.7%) and Italy (84.8%) Denmark (66.7 per cent).
“Our work here is far from done,” admits Guy Opperman. “As many have highlighted, minimum contributions, and where the self-employed fit in does need to be considered. This is why we have launched a review, bringing together experts from business and the industry such as Chris Curry, director of the Pensions Policy Institute, Jamie Jenkins, head of pensions strategy at Standard Life and Ruston Smith, trustee director at Peoples’ Pension, to help us look to the future. The review will report back later this year and will help us take the policy to the next level.”
For a more in depth explanation of Auto-Enrolment for employers see our guide, here.
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