DWP research into employers’ plans for auto-enrolment has revealed significant risks for employers, for employees and for the economy.
- In the past 4 years, provision of workplace pensions has declined from 41% of private sector employers to just 31%.
- 47% of private sector employees were eligible to join a workplace pension but have not done so
- 74% of employers said they expect their pension costs to increase following auto enrolment
- 42% of employers say that they will absorb any increase in pension costs through lower wage increases
- 83% of employers said they would seek information or advice about understanding the legislation. Of those intending to seek advice, 63% will talk to an IFA and 83% will talk to an accountant
- Just 3% of employers have put in place a plan to deal with auto enrolment
- 34% of employers said they would wait until just before or on their deadline to deal with their auto enrolment requirements
- 45% of employers with no pension provision have said they will use NEST
The full research can be found here http://research.dwp.gov.uk/asd/asd5/rports2011-2012/rrep802.pdf
This DWP 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 at Hargreaves Lansdown said: ‘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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