Pension auto enrolment is forging ahead, a government initiative that began in October 2012 with
the largest companies required to implement the statutory process. Workers will automatically be enrolled into a pension scheme organised by their employer which can be a company pension scheme provided it meets certain criteria or NEST (National Earnings Saving Trust) which is scheme set up by the government.
The government has introduced pension auto enrolment to solve the pension crisis as workers in the UK are not saving enough money for their old age. With pension auto enrolment workers are automatically enrolled into a pension scheme by their employers but have the right to opt out. Every three years they will once again be auto enrolled unless they opt out. Apparently the signs are good that many employees are taking up pension auto enrolment. Currently 3% of salary is paid into each employee’s pension pot (2% contribution by the employee topped up by 1% from their employer). This will eventually rise to a maximum of 8%.
However a recent Channel 4 Dispatches programme “What’s Your Pension Really Worth?” has questioned whether if even 8% will be sufficient to build up satisfactory contributions for a person to live on. It contained interviews with older people who consider property to be a better investment, however, for the majority of employees in the UK that is an impossible dream so their only option is to pin their hopes on saving into a pension.
However it is possible that many people, even if they have saved into a pension pot, will not be able to afford to retire and will have to continue to work. Research done recently showed that 1 in 7 workers believe they will never be able to retire. Statistics produced by the Office for National Statistics’ Labour Market Survey showed that in January to March this year almost one million pensioners are still in employment. This perhaps shows that it is important to start saving for a pension early. The trouble is young people have so much else they want to spend their money on – going out, clothes, a mortage, a family, etc.
There are many barriers to creating a healthy retirement fund. Under automatic enrolment rules, companies only need to ensure that 8% is paid in from earnings between £5,668 and £41,450. No contributions need come out of earnings above this amount.
Lower charges would also help. But the millions of workers put into the Government’s flagship auto enrolment scheme, NEST, are unlikely to see fees reduced for many years. NEST was recently hit by £1.4m of fraud and has a huge loan to pay back the government.
Time will only tell whether pension auto enrolment has hit the mark with the pensions crisis, however, in its current format, the signs may not be good.