Employers turn to advisers for auto-enrolment help

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Employers turn to advisers for auto-enrolment help

The DWP's latest interim report on auto-enrolment, published yesterday (February 26), found employers new to the market were typically seeking just enough information to become compliant when undertaking research about auto-enrolment.

The DWP stated the process was almost always prompted by a letter from The Pensions Regulator (TPR), directing the employer to TPR’s website.

The report focused on new employers who employed their first workers between 2012 and 2017 and were required to implement automatic enrolment by February 2018.

It also looked at employers whose automatic enrolment duties began as soon as they employed their first eligible worker, between March and August 2018.

It was based on interviews with 43 employers and 49 workers, 37 of whom remained in their employer’s scheme, and 12 who opted out.

According to the report, the majority of workers are only contributing the minimum rate to their pension, despite many stating they wanted to save more for their retirement.

Where automatic enrolment implementation was outsourced, the employer typically passed the responsibility to an accountancy firm.

A smaller number of employers outsourced to an IFA or bookkeeper, but rarely approached an intermediary they had no previous relationship with.

Some employers also sought information from family members or colleagues who had prior experience with automatic enrolment.

Those with an ongoing relationship with an intermediary often asked them to take on the monthly administration of automatic enrolment.

In rare cases employers were willing to pay an ad hoc fee for consultative support to help understand their duties and choose a provider, the DWP found.

Employers who decided to conduct auto-enrolment themselves undertook relatively limited research, usually focused on a visit to the potential provider’s website, and skim-reading the topic online.

Only in a few cases did employers spend more time gathering information on the rules for compliance.

The report showed new employers were typically selecting the first pension scheme to be offered at their workplace, often opting for the National Employment Savings Trust (Nest), unless prompted to do otherwise by an intermediary or other outside source.

The research also revealed most employers found the cost and time of automatic enrolment to be lower than anticipated.

Employers who felt less confident were more likely to outsource the implementation process.

Meanwhile, the majority of workers opting out of auto-enrolment were aged over 50, with nine of the 12 opt-outs interviewed being in this age range.

Opt-outs were typically either paying, or had paid off, a mortgage, and were still working full-time.

The most common reason for opting out was a belief they had already built up, or would build up, sufficient provision elsewhere by the time they retired.

The DWP found employers were aware of the increase in contributions in April 2018 and 2019 and felt relatively neutral about it.

Generally, employers said they were confident about paying the new rates, and were relaxed about the cost, perceiving it as a small proportion of their overall costs.

Conversely, very few workers were aware their contributions would be increasing in 2019, but were generally neutral or positive about the increase, stating it would help them save more for their retirement.

Ian Browne, pensions expert at Quilter, said: "Our own analysis shows those earning between £45,000 to £60,000 will see the smallest wage increase this tax year after the auto-enrolment rate hike, with their wages going up by just 0.6 per cent.

"However, the long-term impact of the rise in contribution rates will mean that pension pots will be about 66 per cent higher at retirement than they would’ve been if contributions stayed at 3 per cent.

"The impact will be felt across the wage spectrum with those earning over £60,000 seeing around a 1.32 per cent increase and those earning around £30,000 only taking home about 1 per cent more than the previous year."

Mr Browne warned that relying solely on the power of inertia for the continual success of auto-enrolment remained a real risk when considering the general low level of pension contributions.

He said: "Over the course of the next year the industry and government need to do more to ensure we are boosting engagement and education.

"We need to hammer home that foregoing yet more of their salary is not only worth it, it is necessary, because without investing today the current generation risks poverty in later life."

The DWP is due to publish the final version of the report later this year.