There is plenty of crowing in policy circles about the success of auto-enrolment. The headlines are certainly good with nearly 9m new savers and over 1m new employers due to have staged by October. The public has taken to Workie with 83% of those surveyed by Ipsos MORI saying workplace saving was the new normal and 79% saying they would benefit from an increase in their contributions.
This is just as well, since the vast majority of the new savers are on the phasing timeline which sees employer contributions increase from 1 to 2% next April and employee contributions triple to 3%!
But Government should not gloss over the problems. At a recent meeting, both Peoples Pension and NEST reported that cessation rates (where people stop paying after the opt-out window has closed) were rather higher than opt-outs. If this is the case, then we should treat the accepted wisdom that 90%+ of us are “in” with some caution.
The increase in contributions in April will need to be carefully managed. If over-communicated, employers risk being accused of a “nudge too hard” and actually inciting cessations. If under- communicated, employees may well feel mis-sold! And of course, the marketing departments of the providers are going to be uber-cautious about what they are saying as the communications coincide with the introduction of GDPR.
April 2018 will be a busy month for payroll, with the introduction of the National Living Wage. Employers also have to consider the impact of their new business rates. There is never a good time to deliver a further payroll deduction, nor a good time to remind the finance director that the employer is on the hook for an extra 1% of band earnings! Get your bad news in early – last minute shocks never go down well!
How much of a shock will Workie give us?
So just how much of a financial shock will the April 2018 phasing increase be? We’ve done a little modelling looking not just at the contribution shock but the likely impact of taxation and national insurance changes. It looks to us as if the average earner will be losing about £20pm.
The net impact of the forthcoming changes on workers (assuming that relief at source is claimed) is likely to be considerably lower than might be imagined. The hope is that the impact of getting more into workplace pensions will hardly be noticed.
There was more good news for those behind the auto-enrolment project from an Ipsos MORI poll in August. 83% of workers surveyed said that they saw saving into a workplace pension as “the norm”, 80% felt it did them good and 79% claimed they would welcome being nudged into paying more.
So while we should be cautious in our messaging around auto-enrolment, guarding against taking people’s ongoing co-operation for granted, we have grounds for optimism that these pension contributions are indeed a benefit of employment for which employers can take some credit.
The value of the workplace pension, in the eyes of our workers, will of course build over time. There is a saying in Australia that people start getting interested in their savings when they become worth more than their car!
As we move towards that point, more staff are going to start asking questions about workplace pensions. It is at this point that we may start having to move a little faster. While we are walking today, in the future we may have to do a little running and that will mean learning where to point staff to get the information they want.
That is tomorrow’s problem, but employers should be thinking about their role in helping staff get the most out of their pension saving right now!