By Dale Critchley, Technical Reform Manager, Corporate Benefits - Friends Life, part of the Aviva Group 
Key facts are:
• 58,000 employers have complied with their automatic enrolment
• These employers account for 75% of the eligible workforce
• 70% of eligible workers in the UK are now saving for their retirement (or a Lamborghini)
• Opt out rates are between 8% and 14%
• Estimates for the final number of people auto enrolled have been revised upwards from 7 million to 9 million individuals
• 99% of employers have complied with their duties
• The programme is currently on budget.
The report makes the point that operational capacity will be a challenge for providers and that the financial position of NEST is ‘inherently uncertain’. To meet 2014/15 costs NEST is estimated to have needed £20billion in funds under management, as opposed to the £420 million reported in March 2015. These figures provide a startling insight into the barriers new entrants face when trying to enter what is a very competitive market, with low charges, and wafer thin margins. The intimation is that NEST will need to rely on government loans for some time to come, but that is not the only cost to government generated by automatic enrolment.
As more people are automatically enrolled the cost of providing tax relief will increase. Salary sacrifice means that for every £1 sacrificed for employer pension contributions, the government loses 45.8p that would otherwise be paid by basic rate tax payers and their employer in income tax and national insurance. If we add this cost to the already “unsustainable” cost of pensions tax relief, we can conclude that it is unlikely the Chancellor will announce no change to the rate of tax relief when he announces the budget in March next year.
A tax incentive set above the current rate of relief for basic rate tax payers would help mitigate the risk that opt-out figures rise when total contribution rates hit 8% in 2018. It could also provide the foundations on which to build higher contribution rates in the future.
But an incentive set significantly below the marginal rate for higher rate tax payers could result in a significant tax bill for those better paid individuals in the best pension schemes. Employer contributions would become a taxable benefit in kind, potentially taxed at a rate that is deemed unaffordable by those paid around the threshold for higher rate tax.
The challenge to the Treasury will be to ensure that the right balance is struck, which ensures that the good work done by AE is not undone by changes in pensions tax relief.
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