Auto-enrolment circus hits town

Jeff Prestridge

Jeff Prestridge

Slowly but surely the pension auto-enrolment circus is coming to every town and city in the country. And things are getting interesting. Very interesting.

This year, some 38,000 businesses will join the auto-enrolment party, with 32,000 employing between 50 and 250 workers participating from the beginning of the tax year this April.

Of course, it will be interesting to see whether the auto-enrolment success story continues or grinds to a halt, as smaller employers are obliged to provide their workers with a pension option.

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Certainly, the bandwagon, which started rolling in October 2012, has got off to a satisfactory start with more than 3m workers benefiting from a workplace pension for the first time.

According to Nest, opt-out rates are running lower than expected – at 10 per cent rather than 15 per cent (some pension providers such as Legal & General say the opt-out rate is even lower at 5 per cent). And despite the adverse impact on their take-home pay, a majority of consumers believe auto-enrolment is a good idea (pensions minister Steve Webb must be sighing with relief all the way to Birmingham, his place of birth).

Nest’s research indicates that auto-enrolment has pushed pensions right up the list of consumers’ priorities. In 2011, saving for retirement was less of a priority than holidays, home improvements, going out, saving for a rainy day, the car, shoes and clothes. But last year, saving for retirement was only behind holidays and saving for a rainy day. Pensions are now resonating with consumers.

Yet, let’s not get too carried away in a wave of auto-enrolment euphoria. Nest’s research also showed that 63 per cent of employers found the new auto-enrolment regime far more difficult to implement than they expected.

If that’s what big, well-resourced, employers thought, I dread to think what smaller employers will make of it. Run for the hills?

Indeed, Nest’s research shows that 32 per cent of employers with 50 to 99 workers do not even know when their auto-enrolment staging date is.

This figure is very frightening. But it seems to have credence. Now:Pensions has also done its bit of auto-enrolment research, this time among independent financial advisers. Its findings indicate that many employers – nearly two-thirds – are ‘unengaged’ with auto-enrolment. A majority are scared stiff about what it involves, the man-hours it will take up, and the costs of implementation.

It is no surprise, therefore, that only 23 per cent of employers due to stage in the first half of this year are ready to auto-enrolment rock’n’roll. Many are postponing as the regulations permit.

According to Jon Dixon of Cheltenham-based Attivo Financial Planning, postponement is being used for a variety of reasons.

He says many employers have simply underestimated the work involved. This is understandable given the fact that the Centre for Economics and Business Research estimates that a medium-sized employer without external expert help would need to free up 104 working days of someone’s time to implement auto-enrolment.