It was always unlikely that the review team would recommend that the Nest scheme should be canned. Unless minimum contributions had risen to £1,000 a year or more, private sector providers could not have covered the whole market. The reviewers have therefore opted to keep auto-enrolment inclusive by enrolling as many people as possible while doing their best to exclude the maximum number for whom saving in a pension would be pointless.
Another piece of good news was that employers using a basic pay definition to calculate pension contributions – as most do – will be allowed to continue subject to certifying their scheme.
There will be three ways to do this. First, pay in a total of 9 per cent with at least 4 per cent from the employer. This option need not take account of any non-basic pay. Second, pay in 8 per cent of pensionable earnings with 3 per cent from the employer, as long as pensionable earnings are at least 85 per cent of total pay. Third, pay in 7 per cent of pensionable earnings with 3 per cent from the employer as long as pensionable pay is 100 per cent of total pay.
Employers can also put in place an optional waiting period of up to three months. Workers can opt in but not opt out during this waiting period. This means that even at the end of the waiting period, the employer must still enrol the employee into the pension scheme and give them at least 30 days to make up their mind.
Critics of the voluntary waiting period point out that workers will get used to receiving their full pay and will be more likely to opt out when they are eventually enrolled. They also point out that shortterm workers such as those employed for seasonal work will also miss out on a pension contribution.
Employers, however, have welcomed this proposal more than any other. They have long argued that the cost of enrolling temporary staff would have proved prohibitive, particularly in industries such as retail and food production. Workers signing on for two or three months’ work are also most likely to be doing so to make a few extra pounds rather than save for retirement.
Another easement for employers is the option to carry out their triennial re-enrolment of non-joiners within a six-month window. This will allow them to re-enrol workers when convenient rather than during what might be their busiest time of the year.
The timetable for automatic enrolment, the participation of all employers and the age at which workers are enrolled all remain unchanged. Automatic enrolment will still start in 2012 and all employers must be in no later than September 2016.
Very large employers – such as the UK’s top retailers – have won the right to start automatic enrolment from as early as July 2012, so that they can avoid starting the process within the busy Christmas period. All other employers already had the right to bring forward their staging date by notifying the Pensions Regulator.
Small employers hoping to get a lastminute exemption were disappointed. The review team felt that those working for small employers had as much right to a pension as those working for large employers, regardless of the disproportionate burden that automatic enrolment imposes on small business.
Finally, older workers also failed to get a reprieve. There were strong arguments put forward that many older workers who have a reasonable chance of receiving pension credit and housing benefit, were wasting their time saving in a pension. The review team decided to keep state pension age as the upper cut-off point and were perhaps given some comfort on the means-testing concern by the £140-a-week state pension announcement.
John Lawson is head of pensions policy at Standard Life