BLOG: Jamming the machine

Written by Adam Cadle
27/11/2015

Delivering his Autumn Statement on Wednesday, Chancellor George Osborne announced a number of changes affecting the pensions industry.

News filtered through of the state pension increasing to £119.30 a week, a rise of £3.35 a week, with the new flat rate state pension being set at £155.65 a week. Guidance on the pooling of local government pension fund assets into up to six British Wealth Funds was also published but one announcement stuck out like a sore thumb to me.

Osborne said the next two phases of auto-enrolment minimum contribution rate increases will be aligned to tax years, meaning that instead of increases taking place in October, they will now occur in April the following year. Obviously, it is a sensible move for the government in that it will save the Treasury £390m in 2017.18 and £450m in 2018/19.

However, I believe it is sending out entirely the wrong message. At a time when over 5.4 million individuals have already been auto-enrolled into a pension, opt outs low and the number of people saving for retirement is at its highest point since 1997, the government has decided to slow up the whole process of saving more.

Osborne said the reasoning behind the delay is to simplify the administration of automatic enrolment for the smaller employers in particular, but I fail to believe this is the sole reason. It is a government savings exercise of course. NOW: Pensions has calculated that based on a salary of £26,200, for somebody auto-enrolled paying minimum contributions won’t be enough for a comfortable retirement, they barely scratch the surface.

Contributions drastically need to be bumped up in order to eradicate current sentiments that auto-enrolment is perfectly capable of safeguarding future finances. As NOW: Pensions CEO Morten Nilsson said this week in response to the announcement, moving the goalposts causes “unwanted and necessary confusion for employers”.

Furthermore, what did and will employers think when they hear the words “six-month delay”? There will now be a big fear sweeping through the industry that their auto-enrolment planning and strategy can be shifted back by six months. This is not the case at all and employers should be fully involved in ensuring the auto-enrolment process for employees runs as smoothly and effectively as possible.

Media coverage of ageing populations is rife at this moment in time along with increasing life expectancy. How can a savings initiative originally proposed by the Labour government and implemented by former Pensions Minister Steve Webb succeed if people are facing delays to putting more money into their pension pots? I was particularly surprised to read Webb’s tweets saying that the delays “may be a good thing” leading to “lower opt-out rates”.

“If people get pay rises and income tax cuts in April this will mean that the impact of higher pension contributions on their take-home pay will be reduced,” Webb stated.

This might well be true, but I still am of the opinion that the cogs of the auto-enrolment machine which have sparked into life could well grind to an abrupt halt.

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