Automatic enrolment describes the new law whereby, if certain conditions are met an employer must automatically enrol workers in a workplace pension scheme. There are three qualifications an employee must meet before auto enrolment must take place: being aged between 22 and state pension age, earning more than £10,000 a year and are working in the UK.
The introduction of this scheme has seen two thirds of UK workers now saving through their work place pension scheme. This is up from only 45% in 2010 and if those earning under £10,000 are excluded this figure grows to 74% in 2015.
Whilst this is decidedly good news the impact on employers has not been negligible, with 70% saying they are feeling the impact in cost terms. Advice aimed towards combating this has primarily centred around improving productivity. Employers have taken a variety of measures to offset increased costs from lowering profits (21%), paying only the statutory minimum pension for auto enrolment staff (15%), reducing or halting wage growth (10%) and reducing other elements of pay (10%).
With the introduction of the Apprenticeship Levy and National Living Wage in 2017 the burden on employees is expected to become more taxing.
Another worry relates to possible changes to how pension contributions will be taxed in the future. Either introducing a single rate of tax relief or taxing contributions could cause significant problems for employers. The hope is that any change comes after auto-enrolment is completed in 2018.
A recently published report: ‘Employee Outlook: Focus on employee attitudes to pay and pensions’ from the CIPD’ encourages that the way to see increased pension contributions is to increase productivity. Encouragingly, of the 32% of employers who have managed to increase salaries more than 2% in 2015 28% have been able to achieve this through productivity improvements. However only 12% have taken the steps to review both work practices and job design as a means by which to increase performance (a figure which falls to only 8% for small businesses).
Industry experts maintain that with enough small changes and simple steps employers will see not inconsequential boosts to performance and auto-enrolment needs not be the daunting financial burden many have feared.