Auto-enrolment – So successful it doesn’t get into the newspapers
Speaking for the second year running at Ceridian’s customer conference last month, Minister for Pensions Steve Webb talked about the successes of automatic enrolment to date and the continued focus of the Government on supporting good pensions outcomes for the auto-enrolment population.
Melissa Goddard, Ceridian’s Director of Pension Solutions pulls out some key take outs from his speech.
Opt out good news
Opt outs continue to be well below the levels anticipated at the start of auto-enrolment; with younger workers least likely to opt out. Mr Webb called this out as a good news story, “as everyone said that we’d never interest young people in pensions”.
Recent research into Ceridian’s customer base confirms this. We found that opt out rates for the under 25’s is a mere 3.78% compared to 18.86% for the over 60s. Our research also showed that opt out rates are lower amongst women than men, by a small margin of 0.4%.
Mr Webb was asked; given the low levels of opt out, whether compulsory enrolment was now on the cards.
If 9 out of 10 people are staying in freely, why would you want compulsion? Most people opting out probably should, so forcing them to stay in seems counterproductive and could even alienate those who are staying in. When people are not forced into doing something and have control over their decision, they are far more willing.
The Government’s goal is to create a new social norm where people save for their future with good pensions outcomes, but the current auto-enrolment contribution levels, planned to rise to 8% in 2018, are not enough to maintain a standard of living in retirement that people are used to whilst working.
We don’t want people to reach retirement age and then have a shock that they don’t have the finances to continue with the standard of living they are used to.
Mr Webb urged employers to be innovative in finding ways to help their employees save more, and promoted the auto escalation model that has proved effective in the USA, where employees’ pension contributions increase automatically when they receive a pay rise. It follows the same approach as auto-enrolment, where an individual no longer has to take an active role once they have signed up – the decisions to increase savings happen automatically when they get a pay rise.
With the rollout of auto-enrolment reaching much higher volumes of smaller companies this year, with as many as 30,000 businesses reaching their staging date between Easter and the end of the year, Mr Webb acknowledged that it will bring capacity challenges across the industry. Providers, however, are bringing more off the shelf solutions to market to allow suppliers to implement quicker and at a lower cost.
Smaller firms will receive a package that works for them rather than spending a lot of time working out which schemes suit them and their employees.
Ceridian launched its Set up and Switch on auto-enrolment service in August 2013, which allows employers a rapid, cost effective way to get payroll compliant for auto-enrolment.
An alternative summary…