Firms expect government to make pensions mandatory
Rachel Muller-Heyndyk, March 20, 2018
Businesses also expect the government to increase auto-enrolment minimum contributions beyond 8%
Over half (53%) of British businesses expect the government to make workplace pension saving compulsory at some point in the future, with no ability for savers to opt out.
The research by NOW: Pensions found that over a quarter (28%) of businesses surveyed said they thought it likely that beyond 2019, the government would look to increase auto-enrolment minimum contributions beyond 8%.
A similar proportion (27%) thought that the government might look to rebalance contributions so that employers paid either the same or a greater proportion than employees. Only 12% thought that the government wouldn’t make any further changes to auto-enrolment.
All workers aged 22 to state pension age earning over £10,000 a year are currently automatically enrolled into a workplace pension scheme which both the employer and employee contribute to. Workers can opt out, but so far opt-out rates have been as low as 9%.
According to the NOW: Pensions research, women and older employees are more likely to opt out.
Until now employees have been paying 1% of their qualifying wages into their pensions. But this April that will rise to a minimum of 3%. Then in April next year the employee contribution rate will go up to 5%.
Ros Altmann, British peer, UK pensions expert and political campaigner, agreed that mandatory pensions might eventually be phased in. “I would not be surprised to see auto-enrolment eventually made compulsory, but would not expect this for a few more years," she told HR magazine. "Once auto-enrolment is fully in place, which won't be until 2019, further developments may be considered.
“It is possible that the Treasury will then decide that it does not need to add tax relief to workers' pensions in auto-enrolment and the incentive spending should be focussed on encouraging people to save more than the statutory minimum," she added. "We know the minimum level is not enough to provide a decent pension and we need to help people build up more.”
However, policy lead for defined contribution at the Pensions and Lifetime Savings Association (PLSA) Tim Gosling, said compulsory saving didn't seem to be the direction of travel currently.
"Opt-out rates from pension saving have been far lower than expected so, on the basis of the information to date, it is likely that the planned phasing of contributions over the next couple of years will go smoothly," he told HR magazine. "Therefore, even if some businesses are expecting automatic enrolment to be replaced by compulsion, as things currently stand, this does not appear to be the government’s intention.”
The NOW: Pensions research comes as the government publishes its Protecting Defined Benefit Pension Scheme whitepaper, which includes measures to protect against a small minority of unscrupulous employers and strengthen the Pension Regulator’s powers around corporate transactions which could negatively impact their DB scheme.
Kate Smith, head of pensions at Aegon, commented that the whitepaper "is sending out a loud and clear message that reckless behaviour from employers which puts DB schemes at risk will no longer be tolerated.
"Those employers found guilty of deliberately putting their DB scheme at risk can be heavily fined and risk a criminal record," she warned.
She added: “It’s also positive that the Pensions Regulator will be setting out a code on clearer funding standards for ongoing schemes.
"Taken together these new powers will strengthen DB schemes and give greater protection to members’ pensions and in turn should reduce the numbers of DB schemes falling into the Pension Protection Fund. There’s more work to be done, but this is a giant step in the right direction.”
The NOW: Pensions research was based on the findings of a survey of 691 business senior decision makers, and was carried out by YouGov.