Automatic enrolment is to be delayed. Small firms with 50 or fewer staff are no longer required to automatically enrol employees into a workplace pension scheme in 2014. Their start date has been put back until after the end of this Parliament in May 2015.
This means four million people will wait at least an extra year before they start to benefit from employer pension contributions.
There are delays too for big and medium employers but in a different way. These firms will auto-enrol staff in this Parliament, with the biggest (over 120,000 employees) starting next October. But the dates that they must lift the minimum employer contribution from 1 per cent to 2 per cent and then to 3 per cent are delayed by a year. This affects increases in employee contributions, set to rise from 1 per cent to 3 per cent and then on to 5 per cent, which are also put back by a year. That will hit the six million workers who do not save but (according to Government estimates) are about to be auto-enrolled by those large and medium firms.
Even allowing for the low salaries that many of these non-pensioned staff are on, and for the 45 per cent that our research tells us will opt out, a total of £5bn of pension contributions will be lost. That is £5bn less in these pension pots than they were expecting and there is no prospect of that ever being made up.
I told this to the work and pensions select committee in Westminster last week, as I had been called to give evidence two days after Steve Webb’s announcement. They suggested I should persuade employers to go ahead anyway without delay. The whole reason for automatic enrolment is those firms that do not offer pensions are a hard core of employers which have already resisted several sales calls by independent professionals. They are hardly likely to start voluntarily now in the current economic climate.
This delay is likely to widen the gap between employers with good quality pension schemes and employers with a scheme only offering the statutory minimum, or no scheme at all. It is really important that we help human resources directors to defend these good schemes and to realise how their pension scheme helps their business.
I am a fan of the pension quality mark, an independent not-for-profit initiative that awards its mark of excellence to defined-contribution pensions that meet its standards for contributions, charges, communications and governance. Over 250,000 workers are saving in schemes that have gained the pension quality mark.
A recent survey of employers that have won the pension quality mark found their staff had greater trust in their pension and greater awareness of how valuable the benefit is. These staff are much more likely to stay with their employer when recession ends and the job market revives.
Spend some time with your corporate clients that already have pension schemes and remind them of the long-term importance of pensions.
Adrian Boulding is pensions strategy director at Legal & General