This shift in pensions policy all stems from the original Turner Report, which was commissioned by the government to identify ways of increasing the saving habits of the nation, in order to avoid impoverished future generations of pensioners. The report resulted in primary legislation (The Pensions Act 2008) which seeks to implement the objective of a widespread increase in retirement savings.
The Pensions Act 2008 provided a basic outline of the Employers' Duties framework, but left the detail to follow in regulations. The Department of Work and Pensions (DPW) consulted last year on the first set of draft regulations, covering the operation of auto-enrolment. The second consultation covered how the new requirements would be phased in, together with detailed requirements for the certification of qualifying schemes and new draft regulations on the auto-enrolment process.
It should be stressed that this legislation is different to the Stakeholder Pension regime that was introduced in 2001, but did not see a major new take-up of retirement saving. Stakeholder did not require employees to join, or the employer to contribute.
Compulsory enrolment
The new legislation requires all qualifying employees over the age of 21 years old and earning at least £5,000 a year to be enrolled into a suitable scheme without asking them first, although employees so enrolled may opt out afterwards.
Employers will also have to contribute 3% of band earnings, although this contribution, along with the actual auto-enrolment process, will be phased in over a five-year period following the 2012 deadline.
This process will result in around 10m new savers auto-enrolled in schemes set up by more than 1m employers. The opt-out option will probably cut the number of employees who actually persist with saving by half, leaving only 4m-5m, although the number of employers will presumably stay fairly constant as they have no opt-out option available.
Whether this brave new world makes sense in terms of the systems being able to cope with the numbers, or whether some low earners may simply deprive themselves of means-tested benefits, is a debate for a different article - the most important job at the moment is ensuring that employers and employees are fully aware of what the new regulations will entail.
However, the potential snag in the roll-out of the new policy is the possible change of government. There has been a reasonable political consensus about the aims of the legislation, but a future Tory government could review the whole scene and may change some features. It is likely, though, that auto-enrolment would survive.
Underpinning the whole concept is a new national pension scheme, currently called the National Employees Savings Trust (NEST), which will be, in effect, the default plan for employers who may not have an existing qualifying scheme and choose not to use an alternative arrangement. Just to confuse us still further, the Personal Accounts Delivery Authority (PADA), who are setting up this national scheme, had previously called it Personal Accounts.
The NEST plan will obviously conform to qualifying standards and has the unique quality, being non-profit making and it will not turn down small employers, who are usually of no interest to the main providers.
There are many aspects of the new pension regime that need careful analysis and consideration, but for now employers just have to take note of the pensions changes.
Barry Dixon is secretary for the Printing Industry Pension Scheme (PIPS)
