The day before the Chancellor’s autumn statement, pensions minister Steve Web announced a lengthening in the automatic enrolment timetable. This was despite the minister constantly reassuring the pension industry in the previous weeks that auto-enrolment would go ahead as planned.
The announcement was the culmination of pressure from several quarters. The Federation of Small Businesses and the Institute of Directors were becoming increasingly concerned about smaller employers’ ability to fund auto-enrolment due to the poor economic outlook. The
Beecroft report called for the scaling back of the timetable and the exemption of small businesses from the requirements.
The Treasury has had the financial crisis in mind and is looking at the shorter-term tax relief implications of bringing in five to seven million more people into pension saving.
Delaying pension saving is simply storing up more problems for the UK’s future. The longer people put it off, the more likely it is that they will fall back onto the state in retirement and that is exactly what the Government is trying to avoid.
Auto-enrolment will start as planned from 2012. Employers with staging dates up to July 1, 2013 will not be affected by the minister’s announcement but those with 3,000 or fewer employees will be given a later staging date.
The greatest change is for employers with fewer than 50 employees who will not now be staged before May 2015, after the next general election. Employers with between 51 and 3,000 employees are expected to be given a new staging date. But we will not know the exact date
until the new year.
The Government is probably considering a number of options. One may be increasing the number of staging dates by introducing more employer size categories and effectively smoothing the auto-enrolment process.
For example, the employer category with between 2,000 and 2,999 employees could be split into four new categories, so an employer with between 2,000 and 2,249 employees may be staged on November 1, 2013 instead of August 1.
The actual dates are likely to depend on the Government’s estimate of the number of employees in each category.
Phasing in of contributions will also be affected. It is likely that while employers are being staged in, the minimum contribution will continue to be 2 per cent (1 per cent each from employers and employees).
Assuming staging ends in 2017, contributions are then expected to increase to 5 per cent a year. If this is the case, the full 8 per cent of qualifying earnings will only be reached towards the end of 2018, perhaps even later than this. But any further change will mean amending primary legislation.
Many employees will lose out as they will have to wait an extra year before receiving the right to an employer contribution. However, the delay means that most employers will be given more time to get ready for automatic enrolment. But the lack of certainty could easily cause planning blight. The worry is that some advisers will see auto-enrolment as too far away to start engaging with smaller employers.
The sooner the Government publishes the revised staging dates, the better. It could also use this time to look at ways to simplify the auto-enrolment rules and make employer compliance more straightforward.
Kate Smith is regulatory strategy manager at Aegon