Martin Palmer, Head of Proposition, Corporate Benefits - Friends Life, part of the Aviva Group 
These workers have been enrolled by the approx. 43,000 employers that have staged. By the end of the process, it is expected that up to 1.3 million employers will have automatically enrolled up to 10 million eligible workers into a workplace pension scheme.*2
With opt-out rates impressively low (around 10 per cent nationwide)*3, there is certainly reason to be optimistic. But even though we are about half way through the staging timetable, less than four per cent of all employers affected by AE have actually staged so far. As the staging moves into the realms of small and micro employers, we need to continue to have our eye on the prize to ensure that we remain on this positive path.
The Pensions Regulator has set the ball rolling by writing to employers to help them prepare for AE by confirming their staging date and encouraging them to start planning early.
There are 45,000 small and micro employers reaching their staging date this year and over a million next year and beyond*2. The administrative burden for these types of employers will be very different from that of the large employers. Yet in many ways, it is a greater challenge: pension provision may not exist at many of these businesses, and there are no employees filling specific pension roles to help with the process. As a result, it’s unlikely that the opt-out rates that we get for these employers will be as low as the rates we have seen for the larger employers.
But there could also be other complicating factors as AE is likely to be touched by further changes, directly and indirectly, over the next few years.
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Increase in contribution rates in 2017 and 2018. This will be a critical point as many auto-enrolled employees will see a significant increase in the amount that they are having to contribute towards their pension – the employee’s contribution in 2018 may be five times that they were paying in when they were originally auto-enrolled. It is going to be key that we continue to extol the virtues of saving into a pension and the benefit that the employee will receive from the increasing employer contribution.
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Changes to tax relief (a flat 30% rate has been suggested) would redirect more relief to basic-rate tax payers. This could act as an incentive to stay enrolled.
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Further rises to minimum contributions could be introduced post-2018. This has worked will in Australia, although clearly affordability will be a challenge for many savers.
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Automatic transfer (or ‘pot follows member’) legislation is expected to be introduced at some stage.
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Employers who staged early will have to have processes in place for cyclical automatic re-enrolment of eligible jobholders.
AE certainly feels a success so far and it has continued to make a positive mark on UK pension saving over the last year. There’s no doubt that surrounding reforms will impact the profile of schemes and the decisions of savers over the coming years. But it will be critical over the next three years to build on the early successes and continue to encourage people to save for the retirement that they desire.
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