In little more than six months time , auto-enrolment will face its next big test. Minimum contributions to workplace pensions will increase from 1% employer and 1% employee to 2% employer and 3% employee. The contributions need only be paid against a band of people’s earnings , but for most who stay in, this will mean a net pay reduction of over 1.5%.
At a time when wage inflation continues to be sluggish, the Pension Play Pen lunch on Monday 4th September will ask “is this a nudge too far”?
Burdening smaller employers?
The cost of auto-enrolment fall particularly hard on businesses that have not included the increased costs into their cash-flow forecasts. We are currently helping with a survey of up to 80,000 small and medium sized employers to find out what awareness there is of the increase in the auto-enrolment contribution rates in 2018.
There are further questions to be asked; do employers have any understanding of what is happening to the money they are deducting and sending to workplace pension providers?
Are they able to meet the increased demand from employees for information on where the money is going or even able to justify the choice of provider they have made?
Are they comfortable that they are fully compliant at 2% – or aware of the penalties if they are found to be uncompliant by the Pensions Regulator?
An opportunity for small employers?
Complimenting these unpleasant questions, we can also be asking these employers whether they are making the most of the opportunities that auto-enrolment brings them.
Are they credited with the work they have done to establish the workplace pension and to operate it properly?
Is there more that could be done in terms of housekeeping, would now be a good time to think about a switch to salary sacrifice for employer contributions (for instance)?
Is there information generally available that can be distributed to staff to help them plan for their financial future , (with the consequent knock-on benefits on future productivity)
Can the workplace pension be promoted at recruitment and used to keep good staff with the organisation?
Promoting workplace pensions as the norm.
Whatever the results of our survey, it is clear from recent Ipso MORI polling , that more than four in five of us think that saving into a works pension is the normal thing to do, the numbers hardly drop when the question changes to “do you think that workplace saving is good for you?” and even remain constant when the question’s “would you be prepared to pay more”?
But what is good for an employee, is not necessarily good for the employer. Small businesses have no culture of paying contributions to staff and there are many people – worthy people – who consider the combined impact of auto-enrolment and the increases in the minimum and living wage, will lead to business failures.
Which begs further questions for our lunch. Are such business failures a part of the process? Must we accept a level of attrition as the price we pay for establishing a universal workplace pension saving culture? Or is auto-enrolment an unwanted and unnecessary burden on fledgling employers who should be spared the added costs heading their way in 2018 and again in April 2019?
Are there ways that Government can cushion the blow on employers? Could we look at auto-enrolment compliance as more than stick? Could Government operate an incentive to smooth the financial pain – perhaps a pension grant to employers of certain kinds?
Everyone knows that ultimately, an inclusive workplace pension regimen, with contributions similar to those in Australia, would substantially improve later life opportunities for British workers. Everyone agrees that nudging the workforce to that goal is right. However, the role of the employer in this – is too easily forgotten.
Come to the Pension PlayPen lunch
This month’s lunch returns to the Counting House at 50 Cornhill , London EC3V 3PD. We will sit down at 12.30 and discuss these questions at more till 1.45 where we will break and pay our bill which is typically £15 per head – depending on consumption!
You don’t have to be an expert, indeed we’d much rather you came to find out than to show off!
We really value a good mix, as I’ve said before, we tend to have a lot of men coming, it would be great to have more diversity between the sexes – we try to make it easy for women to speak -even if that means shutting up ourselves!