In June, the coalition Government set up an independent review team to look at auto-enrolment and changes that might be required and it recently fed back its findings.
The report has been published against a backdrop of changes to the annual allowance for tax-relieved pension contributions, a proposed reduction in the lifetime allowance and the potential tightening up of the use of employer-financed retirement benefit schemes as an avoidance vehicle. The Government has announced that it will be proceeding with the recommended changes.
Auto-enrolment remains key to achieving the objective of expanding pension savings among the Government’s target group, that is, those earning above the level of the personal allowance (£7,475 in 2011/2012) and on qualifying earnings between £5,715 (2010/2011) and £33,540.
Auto-enrolment and Nest goes forward from October 1, 2012 as planned and, unsur-prisingly, Nest seems to be the default option most likely to be adopted by smaller firms.
Employers who do not fulfil their duties should be warned that there is arguably a more vigorous policing regime than the existing stakeholder basis. They will be required to register with the Pensions Regulator that they have met the requirements within two months of implementing them and that will need to be updated every three years.
Employers who choose not to engage in the new process could be charged a fixed penalty of £400 and for more serious and persistent breaches, an escalating penalty of anywhere between £50 and £10,000 a day, depending on the size of the employer and the nature of the breach.
The general view seems to be that the main changes proposed are sensible alth-ough there will still be critics, particularly in relation to value for money for low earners. Raising the threshold for auto-enrolment to the level of the personal allowance seems a logical step although the debate may continue on the issues of affordability and overall benefit for those on very low incomes.
The review concludes that interpreting the evidence on incentives to save is complex. There will be those who do well from saving and those who do less well but at the point of auto-enrolment, it is very difficult to identify who the latter might be.
Employers will welcome the introduction of a “universal waiting period” and a simp-lified basis on which money-purchase schemes are eligible as “qualifying schemes”. The waiting period of up to three months replaces the previous postponement arrangements for employers using higher quality schemes. Clearly, Nest and auto-enrolment are here to stay and employers have less than a year to get to grips with the implications before the new regime begins.
Stephen Greenstreet is managing director of Origen