The auto-enrolment staging dates for firms with fewer than 50 employees are about to hit. This next phase is what auto-enrolment and the pension reforms are really all about.
For over half a century, the UK has had the strange situation of half the employees in the country being in workplace pension schemes run by their employers and the other half being in an earnings-related workplace pension scheme run by the state. By and large the big employers have provided funded company pension schemes and smaller employers have relied on the state second pension to provide an unfunded workplace scheme for their employees. Half the workforce work for a relatively small number of large employers, while the rest work for a very large number of small employers.
It is those small employers that will be reaching their staging dates in droves over the next two-and-a-half years and most will be establishing pension schemes for their staff for the very first time.
After all the fuss and bother of getting each and every one of the one million or so small employers to set up funded private sector pension schemes we will be in a very different world to the one we have inhabited for the last 50 years. All employees will have access to a funded workplace pension scheme operated by their employer no matter whether they work for a big or small firm.
While this will replicate exactly what we already had on an unfunded basis through the state second pension arrangements I do not think it is anywhere near good enough for the employees involved. Our Government is missing a golden opportunity to do more than simply replicate the paucity of the 20th century state second pension system.
Of course, contribution levels must eventually rise to more than the 8 per cent of banded earnings currently required but there is more to most company pension schemes run by larger employers than a decent pension contribution. Much more.
The private pension system in the UK has developed over the last half century to deliver a wide range of workplace benefits at group rates to employees; the most important of these being life assurance and other death benefits. Yes, half the employees in the country have had a funded workplace pension scheme since the early 1960s and the other half have not, and yes these reforms will put that right, but half the workforce have been lucky enough to have life assurance provided efficiently at low cost by their employers – something the other half have been denied.
Now we have a once-in-a-lifetime opportunity to put that right. The Government should urgently consider whether it is enlightened enough to go one step further with auto-enrolment and require all employers to provide group life assurance for their workers. It is about time the neglected half of the workforce got access to proper workplace benefits that the other half simply take for granted.
Steve Bee is director at Jargonfree Benefits