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Auto-Enrolment One Year On: A Happy Anniversary?

Auto-Enrolment One Year On: A Happy Anniversary?

Today marks one year since the largest employers in the UK started enrolling eligible workers into qualifying pension schemes. But has it been a successful year for auto-enrolment?

Although it is still early days, initial figures suggest that the employee opt-out rate has been less than 10%, significantly lower than the 20% to 30% expected.

Inevitably there will have been an element of ‘pensions apathy’: it is easier to stay in a scheme once enrolled, rather than work out how to opt-out (particularly if the statutory opt-out period has passed).  But, with the consistently low number of UK employees contributing to a pension scheme before auto-enrolment, and the failings of the previous stakeholder regime, surely appetite to remain in a scheme once enrolled can only be a good thing in terms of saving for retirement?

Regardless of the reason for the low opt-out rate, it is fair to say that auto-enrolment still presents challenges for many employers.  And the knock on effect of the low opt-out rate is, of course, increased cost.  The management and administration time companies have to invest in auto-enrolment, including the need to communicate with employees in a way that is easy for them to understand, is significant (particularly when things like postponement, contractual enrolment and salary sacrifice are involved).

In the oil and gas sector in particular, assessing the workforce for auto-enrolment is a much trickier process than envisaged by the Pensions Regulator. With an international and mobile workforce including offshore workers, workers on vessels, contractors, agency workers, day raters, and staff working in and out of the UK and UKCS, determining (and monitoring) whether workers are eligible for auto-enrolment, and ‘ordinarily working in the UK’, is not an easy task.

Auto-enrolment’s inaugural year has been a successful one for pension saving if the figures are anything to go by.  But the next stage will be an important time for auto-enrolment.  We have now entered the period where SME’s are covered, with auto-enrolment applying to employers with 1250-800 employees, and then the start of 2014 will see those with 499-250 employees having to comply.  Arguably smaller businesses may have less resource to throw at auto-enrolment, and the costs are likely to have a greater impact on them.

This, combined with the Regulator’s increased focus on the quality of pension schemes being offered to employees, the recent publication of the Scottish Government’s paper on ‘Pensions in an Independent Scotland’, and the new Pensions Bill, means that there is no doubt that the next year in the pensions world will be an interesting one.

Caroline Strathdee
Senior Associate