27 Aug Pensions Auto Enrollment– Time to take off
The importance of water is realized only when one feel thirsty, the same work for pensions too. As people develop through their lifetime they have an expectation that a time will come when they will be able to retire.
In October 2012 with the government announcement for workplace pension scheme, there arose a new set of regulations that employers need to comply with. All employers, regardless of size and nature of their ventures have to enroll all their employees into a qualifying workplace pension, without employees having to take any action. This is known as auto-enrolment. Any act to get the employees to opt out either by force or other means is a finable offence. The government estimates that around seven million people are not saving nearly enough for retirement, with many people not saving at all!
With life expectancy increasing, people are potentially facing up to 40 years in retirement and while the State Pension provides a safety net, it may become insufficient for post-retirement needs. Auto enrolment therefore provides an additional layer of savings to help people have a more comfortable retirement. While some are fortunate enough to assemble enough wealth through their business ventures and other assets, there are some who find that the state pensions are enough to provide a basic level of income post retirement. However, there is a large portion of people who fall in neither of the categories – i.e., want more than state pension schemes and also have insufficient accumulated wealth. For all those who feel they need to supplement what they have with some form of pension scheme, Workplace Pension Scheme seems to be a boon in fortune.
With the start of auto enrollment in the workplace pension scheme millions of workers in the UK will gradually see a slice of their pay packet being automatically diverted to a savings pot for their pension. On an employee front it is easier to contribute an amount from one’s earning before seeing it and accordingly the take-up of workplace pensions by employees since 2012 has been so highly successful. As per to figures released from the Office for National Statistics (ONS) l in December 2016, total membership of occupational pension schemes in the UK rose to 33.5m in 2015, up 10% compared with 2014’s 30.4m, and this figure will increase significantly again in the next two years as workplace pensions continue to be introduced.
The national average opt-out rate is around 10%, according to the Auto Enrollment Bureau, which is considerably low.
From October 2018, somebody earning £20,000 a year would see £96.24 going into their pension pot every month. For this, some £48.12 will be taken from their take-home pay. They will not be able to get at the funds until the age of 55 at the earliest, so in the meantime, the money is invested.
Surprisingly according to www.enrolsme.com about 79% of micro employers and small businesses such as organic food shops, microbreweries, self-owned garages, are still not aware of their staging date. Although the awareness level for auto enrollment is improved but still there is huge way to go. The lack of awareness can also result to capacity crunch. Moreover, a major part of small business already seems to be worried that auto enrollment will negatively affect pay rise and bonuses. Even the business with 1-5 employees (legal transcription services, digitisation and electronic document management services) may find it difficult to look for a further staff/business expansion in the coming year.
Reduction in the take-home salary can often result in trouble being able to pay one’s regular bills. Employers are looking for sources to unburden their employees and organisation by re-gaining the profitability that existed from the pre workplace pension scheme policy time. By offloading tasks and thereby saving costs, employers are ensuring that they can maximise both employee salaries and organisation profitability. Employers are also benefiting from outsourcing their services outside of the UK (Legal transcription services, digitisation and electronic document managment services) as it means that they do not have to undertake auto enrollment for their offshore contract-based service provider. There are two types of cost savings – one in terms of CTC (Cost on the Company) and other in form of pension contribution.
Automatic enrolment is not a one-off event. It truly is changing the landscape of saving on a daily basis. Many of the schemes around the world have been introduced in the past 20 years, and – with the exception of the Kiwi Saver of New Zealand- and there has been little done to review how successful the schemes have been so far.