‘Millions’ may drop out of auto-enrolment, survey finds
Pensions experts have warned that around three million people may drop out of a government scheme designed to encourage more workers to save for their older age.
According to the findings of a Populus poll for the National Association of Pension Funds, released on 20 October, one in three people would be unlikely to stay in a workplace pension they had been auto-enrolled into. It has been estimated that auto-enrolment – which will begin on 1 October 2012 – could create up to nine million new savers.
When asked why they would opt out, 48 per cent said they could not afford the contributions, 29 per cent that they did not trust the government and 26 per cent that they did not trust the pensions industry.
Meanwhile, the Pensions Regulator has warned employers against leaving their planning for auto-enrolment to the last minute. Its own research, published in the summer, found that 46 per cent of employers quizzed would leave it as late as possible before thinking about how to comply with the new law. Among larger employers, who will be affected first, only 13 per cent were fully prepared.
Key points of auto-enrolment include:
- employers will be required to automatically enrol into a qualifying workplace pension employees who:
- are not already in a workplace pension scheme;
- are aged at least 22 but are below state pension age
- earn more than a minimum earnings threshold, currently £7,475 a year
- work in the UK
- the phased introduction of auto-enrolment will begin on 1 October with businesses employing120,000 people or more. Other employers will follow until all are included by 1 September 2016. Businesses employing less than 50 people will come on board between March 2014 and February 2016
- the Pensions Regulator will write to each employer around 12 months before their date for starting automatic enrolment, to remind them of their new responsibilities
- based on each worker’s qualifying earnings (between a minimum of £5,715 and £38,185 maximum in the current tax year), the employer contribution will start at a minimum one per cent of those earnings during 2012-2016, rising to a minimum three per cent from October 2017
- overall, the minimum total percentage going into each employee’s pension pot – including their own contribution, their employer’s contribution and tax relief – has been set at two per cent of qualifying earnings from October 2012-September 2016, rising to eight per cent from October 2017 onwards
- pension schemes must meet certain government standards for employers to use them. The options include using NEST (National Employment Savings Trust), a simple, low-cost scheme, or using an existing scheme that qualifies or changing it so that it qualifies
- employees can opt out of the scheme during their first month of membership (when they can receive a refund of their contributions) or at any time afterwards (when contributions stay in the pension pot). They can also rejoin at any time and employers must automatically re-enrol non-members meeting the original qualifying criteria around every three years.