19th July 2013
The millionth worker has been auto-enrolled into a workplace pension this month. The new scheme was launched last autumn requiring the largest employers in the UK to offer their employees a pension, provide employer contributions and unless an employee stated otherwise automatically enrol them into a pension.
This is one item of slightly better news in the pensions landscape for the UK in a week in which the Office for National Statistics found savings at an all time low.
The Minister for Pensions Liberal Democrat Steve Webb said has hailed the statistic as “a real landmark in this quiet revolution, finally reversing decades of decline in pension saving”.
The Department for Work and Pensions says this is the biggest change to the pensions system for a century. “The money workers save is being matched by contributions from their employers and topped-up by tax relief, helping them put money aside for their retirement, many for the first time.”
At Mindful Money, we don’t wish to be too pedantic, but the employer contribution is still rolling up to a minimum of three per cent in many cases, it is currently at two per cent, the employee contributes at least four so it is only ‘matching’ because of the tax relief.
There is a risk that some employer schemes will be made less generous i.e. because the broader auto-enrolment scheme will cost employers more, they may cut existing pension benefits but we don’t know quite how widespread this effect may be just yet. The pension industry has warned of such ‘dumbing down’.
Eight per cent may not be enough for much of the workforce so there is speculation either that the government will increase this amount at a later date, or that it will at least have to try and convince people to save more.
It is also possible that in this financial climate a lot of people opt out of the system. But it is on balance, good news, that more people have been brought into a pension saving.
The ministry quotes the Travis Perkins Group which is among the employers who registered when the one million employee mark was reached. The builder’s merchants has automatically enrolled around 9,000 of its workers into a pension scheme.
Geoff Cooper, Chief Executive of the Travis Perkins Group, said: “At the Travis Perkins Group, our employees are already among the most engaged in the UK. A critical part of this is down to recognition, reward and feeling good about their future. Encouraging every one of our 24,000 employees to save for the future is very important for us, and I am proud that our company has played a part in reaching this important first million.
“The automatic enrolment scheme has helped us overcome some of the retirement savings inertia that people have, and our internal communications campaign seems to have struck a chord with many of our people.”
More information provided about automatic enrolment from the DWP
Starting with the largest firms in October 2012, employers will now be required by law to pay into a workplace pension for those workers who are automatically enrolled and who do not opt out.
Employers will automatically enrol workers into a workplace pension who:
The minimum contribution rates that an employer must pay into their worker’s pension scheme are being introduced gradually. This is known as ‘phasing’. The minimum contributions are currently a total contribution of 2% with at least 1% employer contribution. This builds to a minimum contribution of 8% by October2018 (with a minimum employer contribution of 3%), but many employers and individuals will choose to contribute more.
The Pensions Regulator is responsible for supporting employers in meeting their automatic enrolment duties. They provide information and tools to guide employers through the process.
The DWP calculates that around 11 million people are not saving enough to achieve the pension income they are likely to want or expect in retirement, and less than 1 in 3 adults are contributing to a pension, while people are on average living longer – in the past 25 years, life expectancy at age 65 has increased by 5 years for men and 3 years for women.
Employers have up to four months from their staging date to provide the regulator with information on automatic enrolment. This is known as registration. Because of this window, many employers who staged before July 2013 have yet to complete the registration process and will therefore not be included in published figures.
An employer’s staging date is set in law and the date when duties go live is set by statute. Employers who wish to bring forward their staging date can do so, but you must notify The Pensions Regulator of this decision one month before the new staging date. Details on how to do this are on the regulator’s website.
The numbers enrolled into workplace pensions were published in the Annual Survey of Hours and Earnings.