Your IndustryJun 13 2013

Pros and cons of automatic enrolment for employees

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by

While the vast majority will benefit from being offered a pension plan, some individuals could be worse off if they fail to opt out.

Most workers will benefit from regular contributions paid into a pension plan that provides an income at retirement, without having to do a thing.

This is a particular boost for workers where either the employer did not provide a pension scheme previously, or where the scheme was of a lower standard, if, for example, the employer did not contribute.

Workers can also feel confident that their retirement planning will continue if they move employers - especially when ‘pot follows member’ rules are formally introduced, requiring funds of less than £10,000 to be transferred when an employee moves jobs - and that employers will not be able to reduce the quality of the scheme below a certain standard.

However, the relatively low minimum contribution levels mean that many workers, and especially higher earners, will still need to take action to ensure that they are contributing enough to achieve their goals and prevent a drop in lifestyle in retirement.

The risk of being enrolled through apathy means that employees could continue to pay the low level of minimum contributions, which are unlikely to meet their retirement aspirations.

It will be a challenge for advisers and providers to ensure that employees and their employers are aware of the levels of income that minimum contributions will produce and the benefits of contributing more.

Plus, there are some employees who should definitely opt out, most notably those with enhanced or fixed protection, or those nearing retirement.

Dale Critchley, technical reform manager of Friends Life, says the DWP and The Pensions Regulator had an indicated that whatever action was taken to ensure these individuals opt out will not be considered inducement to opt out.

This will mean it will not be considered a breach of the rules to advise an employee approaching retirement, or with fixed protection, to opt out of a scheme.