The industry is split over whether the Government will be forced to slow the pace of automatic enrolment as millions of small employers set up pensions for the first time.
In yesterday’s Autumn Statement the Chancellor revealed planned increases to minimum contributions will be delayed by six months.
The move nets the Treasury £840m over two years and will cost the average saver £770 according to provider Now: Pensions.
Earlier this month, the National Audit Office revealed the Government has put in place plans to apply an “emergency pause” to its flagship long-term saving programme if it starts to veer off the rails.
But while some experts agree the Government should “hit the button if the missiles start flying”, others warn a delay could cause “mayhem”.
So could the delay to rising contributions pave the way to more radical changes to the rollout of auto-enrolment?
While the NAO says the success of auto-enrolment is “exceeding many of the Department for Work and Pensions and The Pensions Regulator’s assumptions”, it reveals there is a procedure in place to delay “as a last resort”.
Any extension to the rollout of the programme would not be the first time the Government has pushed back the schedule. In addition, a number of issues make a pause – which was enshrined in the Pensions Act 2008 – a realistic possibility.
Hargreaves Lansdown head of retirement policy Tom McPhail says: “The number of employers who have to go through auto-enrolment has increased substantially since 2012.
“At the same time, the private sector’s willingness to share the load has diminished significantly, so effectively all those micro firms are going to go to Nest.
“And the pensions minister is telling us her top priority is the state pension and getting auto-enrolment over the line.”
However, Tisa director of policy Adrian Boulding – who was part of a three-man team that reviewed auto-enrolment during the last Parliament – has attacked the NAO for disclosing the “disaster recovery plan”.
He says: “I don’t think the NAO should have published this because it is only disaster recovery, it is not a realistic prospect at the moment.
“There is plenty of capacity in the industry to deal with small employers and the number of master trusts out there is growing, not shrinking.
“What the NAO have done is quite counter-productive. They have created a sense among the small business community that, in the end, they might not have to do auto-enrolment.
“The whole edifice of these reforms is built on a principle of contingent compliance. Publication of the disaster recovery plan has chipped away at that principle.”
This month Money Marketing revealed The People’s Pension is to add a £500 fee for new employers signing up from 2016, while Now: Pensions plans to charge up to £36 plus VAT a month for increased support for micro employers. Nest says it will not charge employers, though retains the right to add a fee.
McPhail says: “We have a department that is increasingly nervous about negative exposure and a single provider on whom effectively the whole auto-enrolment programme is dependent. It would only take one glitch and suddenly everything grinds to a halt. So the pause button looks a whole lot more relevant than it did in 2008.
“If I was the DWP I would make sure I had the plan in place, put it back in its box and hope I never have to use it. But if the missiles start flying, I would open the box and press the button.”
Towers Watson senior consultant David Robbins says previous changes to auto-enrolment’s timetable have been dictated by the Treasury, rather than fears over firms’ ability to comply.
He notes six incremental delays since the Pension Commission first recommended introducing auto-enrolment to the Labour government in 2005.
Others warn any changes to the timetable risk undermining confidence in the system. The DWP has recently launched a new awareness campaign, shifting the focus from workers to employers. All firms would need to be contacted yet again if staging dates were pushed back.
Royal London director of policy Steve Webb served as pensions minister at the launch of auto-enrolment in 2012. Webb oversaw a 12-month delay to the reforms while in office.
Speaking before the announcement he says: “Auto-enrolment has been so positive and we’ve finally got on with it. The start was 10 years after the Turner Commission. The timetable has already been delayed and elongated and at this point to start issuing new staging dates to people that have already had them would be mayhem.”
Following yesterday’s announcement, the increases from 2 per cent of qualifying earnings, to 5 per cent from October 2017 and to 8 per cent from October 2018, will now happen six months later.
The rise to 5 per cent will take effect from April 2018 and to 8 per cent from April 2019.
Now: Pensions estimates an average earner could miss out on £770 of pension contributions as a result of the latest delay.
Chief executive Morten Nilsson says moving the goalposts at this stage adds “unwanted and unnecessary confusion for employers” and sends “entirely the wrong message to savers”.
“Rather than slowing the process down, the Government should be looking to increase contribution rates. The reality is auto enrolment minimum contributions won’t be enough for a comfortable retirement but savers are under the illusion that auto enrolment will safeguard their future finances.”
Association of Consulting Actuary chair David Fairs says: “I think we stand at a point of inflexion.
“To date, auto-enrolment has done more to bring employees into pensions saving than the many corporate communication programmes that have been run in the past.
“Yes, there is the challenge of rolling out auto-enrolment to small and micro employees and the concern that opt out rates might rise as contributions increase, but the Government has the opportunity to build on the success to date by setting out its policy as to how it can get those now auto-enrolled to save more.
“I don’t believe Government should duck out of a firm lead in this area.”
While some believe there are signs the Government is debating putting a brake on auto-enrolment, others want to move in the opposite direction.
Research produced by the Pensions Policy Institute in September shows around 20 million people aged between 16 and 64 are not eligible for auto-enrolment.
Labour shadow pensions minister Nick Thomas-Symonds says he wants to explore expanding the scope of the programme. He says: “We don’t want a situation with millions of women being excluded and there’s a bit of an oddity that we should assume everyone has one job. It would be interesting to see how many people have multiple jobs, all below the threshold.
“Household income is also important. Someone may have a job paying below £10,000 but their partner may be earning a lot more and they might actually want to contribute. There may also be arguments around lowering the threshold at which people start contributing.”
But Webb says: “Millions of people already have a pension. Around half of those who don’t are eligible within the rules. Of the remainder you have the under-22s, who will get there in a year or two. There are people over the pension age who were never the focal point. And you have people earning relatively low sums – there is absolutely no way people on £3,000 or £4,000 a year should be enrolled.”
But he concedes the Government will have to address the rise of self-employment.
Webb says: “The self-employed is a serious issue. They get a boost of around £1,500 a year from the new state pension but a lot more needs to be done to raise awareness.”
“Why do you have to be so macho?” That was Yvette Cooper’s irate question to Alistair Darling in 2009, according to the Sunday Times.
What had reportedly irked Cooper, then Work and Pensions Secretary, was Darling’s insistence on using his Autumn Statement to delay the rollout of automatic enrolment.
The last compliance date for small employers was pushed back from 2015 to 2016. Larger employers would be brought on board more slowly, allowing the Treasury to bank £100m in lower tax relief costs in 2012/13.
Minimum contributions would not start rising until 2016, and would not be fully phased in until 2017 – both a year later than previously planned.
Two years later, George Osborne’s officials suggested reheating the idea that they had given his predecessor.
The DWP fought against this. Steve Webb joked that “2012 is definitely happening next year”. Iain Duncan Smith rejected claims that auto-enrolment was a drag on growth and said: “I stand here today categorically prepared to take on anybody on that basis.” It was fighting talk but it did not stop further delays.
Staging dates were delayed for employers with fewer than 250 staff, with contribution increases again put back a year. This improved the fiscal forecasts to the tune of £340m in 2016/16.
Now there are reports the Government may delay compliance dates for some small employers until 2020.
Could this be part of a deal that allows Iain Duncan Smith to avoid cuts to Universal Credit?
Or was it to pre-empt a renewed threat to automatic enrolment that DWP recently launched its campaign telling people not to ignore the workplace pension?
If the Department for Work and Pensions did put up a fluffy monster to fight the second most powerful man in Government, my money would be on Osborne looking the more macho of the two.
David Robbins is a senior consultant at Towers Watson
Scott Gallacher, director, Rowley Turton
I suspect the Government will need to delay staging because I do not know what they are going to do when it gets down to the chip shop owners and nannies. Until now, all the firms that have staged have been able to afford professional help. But smaller employers won’t have the money and a delay doesn’t change that – we need more affordable solutions for those employers. Auto-enrolment has the potential to come unstuck very quickly over the next few years.
Robin Keyte, director, Keyte Chartered Financial Planners
I hope staging dates do not need to be delayed. Small employers do not necessarily need professional advice, it is more about whether they can afford contributions and are willing to get themselves organised in time. There is the potential for Nest to be overwhelmed by demand, but Nest has seen this coming for several years and should have plans in place.