OpinionMay 15 2013

More joined-up thinking needed over AE

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We keep hearing that auto-enrolment is a big opportunity for advisers, especially when staging dates over the next few years start introducing small and medium sized firms to the new workplace pensions.

This is true, many small firms don’t have their own HR departments, and will need the assistance of advisers when planning the implementation of their schemes. But do we actually know what kind of effect the roll-out it will have on the wider economy? And will firms be able to afford it?

Of course there are benefits in compelling people to enrol with workplace pension schemes. We as journalists are always writing about the ageing population and the need to provide for and plan for retirement.

But the key point about the whole initiative is affordability, for the company and individual.

One prominent pensions expert told me this week that the government had not woken up to the changing trends of retirement, and had not thought about the wider effects on the economy as firms are legally required to pay into the pension schemes.

Many will have to forego pay rises to afford to pay for auto-enrolment, which could make tight finances for staff even tighter.

That then has an effect on the rest of the economy, as individuals spend less, exactly the opposite to what the government wants us to do to improve economic growth.

The process is well under way now, but an unintended consequence could be that we all actually put less towards our pension as employers struggle to cope with auto-enrolment’s requirements.