All I ever seem to hear people talking about these days is the fact that people who are not in pension schemes will be auto-enrolled into the new national scheme of personal accounts in 2012. Yes, they will, but if their employers have good pension schemes available to them, they will be auto-enrolled into those schemes instead. The only people who will be auto-enrolled into the personal accounts being designed by the Government are those whose employers do not offer a workplace pension scheme.
Of course, 2012 is a long way away from 2007. Given that 80 per cent of our private-sector final-salary schemes are already closed to new employees in 2007, it seems likely that none will be able to admit auto-enrolled employees in 2012. Auto-enrolment will not swell membership of private-sector final-salary schemes.
The trend these days is for employers running final-salary schemes to close those schemes to new employees and establish group personal pension schemes for them instead. There are some problems with EU law with auto-enrolment into contract-based schemes such as GPPs but given the number of employers that have such arrangements in place, it seems likely that a way will be found by 2012 to allow auto-enrolment to take place.
Existing GPPs should see a dramatic increase in membership in 2012 if they meet the criteria that will be set for good schemes.
The same will happen with money-purchase occupational schemes. Those still running in 2012 will also see a dramatic increase in membership once auto-enrolment kicks in.
Group stakeholder pension schemes are interesting as well. They are GPPs, too. If auto-enrolment is fixed to work with contract-based GPPs, it will work with contract-based GSHPs as well if employers are prepared to pay enough into them so that they qualify as good schemes.
I do not see why employers would object to paying into a GSHP rather than personal accounts as the employer contribution after 2012 will be compulsory if auto-enrolled employees decide to save for a pension. It is only the employees who are able to opt out of auto-enrolled pension scheme membership. Indeed, many employers may like the idea of contributing to a smaller arrangement that is tied to their company than to a massive national scheme that will not necessarily be associated with the employer in the minds of employees.
It would not be too much trouble for employers to provide a company-sponsored GSHP either. If you remember, back in the days when stakeholder pensions were introduced, it was a legal requirement for all employers with more than four employees to make a group stakeholder pension scheme available to their employees. Indeed, they risked a fine of £50,000 if they did not. Over 300,000 new workplace stakeholder pension schemes were established as a consequence. Most of the schemes are sitting idle today with no members in them as there was no auto-enrolment in those days. Membership was voluntary and, by and large, most employees just ignored the new pension schemes that their employers had been obliged to put in place for them.
However, in 2012 that will no longer be the case. Auto-enrolment will hit about half the workforce in the UK. Maybe the group stakeholder pension schemes that have been sitting patiently waiting in the wings in hundreds of thousands of companies up and down the land will one day be filled with auto-enrolled employees, too? Wouldn’t that be interesting?
Steve Bee is head of pensions strategy at Scottish Life