The proportion of workers signed up to an occupational pension scheme could increase by over 50% as a result of auto-enrolment, according to new research from the Chartered Institute of Personnel and Development.
From October 2012, employers became legally obliged to automatically enrol workers aged 22 years or over, and earning more than approximately £8,100, into a qualifying pension scheme into which the employer must contribute (otherwise known as auto enrolment). The initial enrolment process started in October, with the largest employers, and continues in stages until October 2017, for the smaller employers. At commencement, there is a minimum contribution requirement of 2% and at least 1% must come from the employer. This will gradually rise.
Between October 2017 and 2018 the minimum contribution rate increases to 5%, with at least 2% being paid by the employer, and from October 2018 the contribution rises to a minimum of 8%, with at least 3% paid by the employer. Employers are able to contribute more than the minimum if they wish, subject to pension tax-relief limits. Employees must not have any decisions to make in this process, so there should be a suitable default investment fund in place. This quarter’s focus section investigates the awareness of auto-enrolment among employers and what they have been doing to prepare for when it goes live at their organisation. We have also taken data from this quarter’s CIPD Employee Outlook survey to see how employees may respond to the pension changes.
Awareness of the auto enrolment scheme
The vast majority of LMO employers are fully aware of the auto enrolment changes. Organisations in the public sector (84% aware) are less likely to be aware of the legislation than private sector organisations (90%). By
employer size, those employing 251 or more employees (91%) are more aware than those employing between 1 and 249 workers (84%).
Figure 1 also shows that among those organisations that are aware of the legislation, over two-thirds of them have already identified the date when they will start automatically enrolling employees into a pension scheme. However, a fifth have yet to do so. Organisations in the consultancy services (35%) and the finance, insurance and real estate (26%) sectors are the most likely not to have identified a date to autoenrol employees into a pension scheme, while employers in the public administration and defence (78%), wholesale and retail trade (77%) and the manufacturing and production (77%) sectors have been the most likely to have checked the date. Figure 2 shows that among those of our sample that know when their staging dates are, 57% have dates between 1 October 2012 and 1 September 2013. By sector, 84% of public sector organisations have a staging date before 1 September 2013 compared with 47% of private sector organisations, a reflection that public sector employers are often larger employers.
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