Auto-enrolment delay will cost £5bn in lost savings
Legal & General pensions strategy director Adrian Boulding says the delay to the auto-enrolment timetable announced earlier this week will reduce pension saving by £5bn.
On Monday, pensions minister Steve Webb announced auto-enrolment will be delayed for small firms until after 2015 and said any employer expecting to auto-enrol their staff after July 2013 could see their staging date pushed back. This could include firms of up to 3,000 employees. The introduction of the full 8 per cent contribution rate will also be delayed. The Government will set out new dates early next year.
Giving evidence to the work and pensions select committee this morning, Boulding said the changes would hit savings levels.
He said: “It will have a significant effect on pensions saving. I did the calculations last night and it means £5bn less will go into workers’ pensions accounts as a result of those delays on small and medium and large firms.”
Friends Life head of corporate benefits marketing Martin Palmer agreed, adding that the changes increase the risk of employers levelling down their contributions.
He said: “When firms automatically enrol people who are not already in schemes, we hope they will keep contributions at the current level. The problem is by delaying the date those individuals must be increased up to 2 and 3 per cent you are effectively lengthening that period and for the employer that is suffering financial hardship they might be encouraged to level down.”
NOW:Pensions advisory board member and ex-Conservative MP and Shadow pensions minister Nigel Waterson told MPs the move would seriously undermine people’s retirement income.
He said: “A whole chunk of Turner’s target audience are just taken, at one stroke out of pension saving. Even on the current timetable they would have a big gap they will never be able to make up in their pension pot and this is only going to make it worse.”