By Matt Ritchie
Reactions to the government’s announcement on delays to the implementation timetable for auto-enrolment have been varied, ranging from scathing criticism to acceptance.
Pensions Minister Steve Webb yesterday confirmed persistent speculation that smaller employers would be joining the auto-enrolment regime later than originally planned. Firms with fewer than 50 employees will now be covered by the legislation in May 2015 rather than April 2014.
Consultant at pensions actuary Barnett Waddingham Malcolm McLean said the news was disappointing from a pensions and long term savings point of view. There had always been the risk that government would lack the “courage of its convictions”, he said.
Whilst McLean understood the concern around overburdening small businesses in this difficult environment, he said other options to soften the blow were available. For example, the government could offer greater fiscal support to businesses via the tax system, to offset some of the extra cost of pension contributions.
“It is a fact that many of the employees of these sorts of companies are the very ones who are most in need and stand to gain most from having an employer backed pension scheme. Why should they miss out when others who happen to work for slightly larger companies stand to gain?
“The DWP’s statement suggests that for small employers (up to 50 employees) it is delaying the implementation of auto-enrolment, not scrapping it completely. But is that so, and can we be sure that if the economic situation is no better by 2015 that the timetable won’t slip again? This is all most unsatisfactory,” McLean said.
The National Association of Pension Funds (NAPF) welcomed the reassurance that auto-enrolment is still starting next year, and all employers will be covered one day.
However, NAPF chief executive Joanne Segars said that the reforms had been a decade in the making, and now was the “time to press play, not pause”.
“Small businesses are absolutely critical to making these reforms work, because their staff are the least likely to have a workplace pension.”
Segars added that the change will cause doubts among businesses as to how much faith they can have in the system, and they may wonder whether further “upheaval” is likely.
“The government needs to restore some trust in these hugely important changes. The UK simply isn’t saving enough for its old age, and we have to get these reforms right,” she said.
However, the Association of British Insurers (ABI) was more accepting of the change.
ABI director of life and savings Maggie Craig said that although the association had always “strongly backed” auto-enrolment, it accepted the UK is facing huge economic challenges and that small businesses are “up against it”.
“We support the government’s efforts to alleviate some of this burden by allowing more time for the economy to recover before smaller companies start enrolling their employees into a pension.”
However, Craig added that it was “very important” that the timetable not be allowed to “slip and slip”.
“We need a firm timetable so that employers are clear what is expected of them and the millions of workers in the UK without a pension can start saving for their retirement,” Craig said.
The delay will take around 7.5 million people out of the auto-enrolment population, presenting a “huge challenge” to Nest and other providers who had been preparing for the change, according to pensions partner at PwC Peter Woods.
Large employers who were planning to use one of the affected providers may also be concerned about whether the schemes’ charging structures will remain the same.
“Whilst the government has confirmed that all employers will remain in scope for auto-enrolment, the stretching of the implementation timeline into the next parliament may lead to potential complexity or confusion. We therefore urge the government not to delay publishing the entire revised implementation schedule early in the New Year.”
Chief executive of JLT Benefit Solutions Duncan Howorth said just under half of people due to have been captured by auto-enrolment will be affected by the change.
Although giving small companies more time to prepare for the changes may seem like a good thing “on the face of it”, the frequent changes to the regime risk leaving affected firms in limbo.
“Steve Webb has done a great deal for pensions and has been an immensely impressive minister - his reform schedule has achieved more in a year than was achieved during Labour’s entire time in office, so perhaps an easing off the accelerator was inevitable at a time when Corporate UK has pressing economic issues to consider.
“Against the backdrop of recent statements on this matter, this late change could raise questions about the stability of other proposals on the government’s pensions agenda,” Howorth said.