The government is playing down reports that it is considering a pause in auto-enrolment, saying its contingency plans are standard practice for any major government policy initiative.
The move comes in response to media reports that it is mulling a delay in auto-enrolment that could see micro employers’ staging dates pushed back beyond 2018.
These reports follow the publication of a National Audit Office report at the beginning of November which said the increase in the number of employers identified by TPR – which now believes 1.8m employers are still to stage, rather than the 1.3m previously envisaged – will place significant pressure on both the regulator and Nest.
That report says as a last resort the government has set out an ‘emergency pause’ procedure to apply if the programme is unable to cope with unexpected increases in demand or changes in behaviour. “The Department, The Pensions Regulator and Nest are continuing to develop the range of responses they might introduce if demand rises,” the report says.
The NAO report says ‘operational risks are significant’.
It has confirmed that the yearly cost to the Treasury of tax relief from auto-enrolment has increased by £700m to £2.2bn as a result of lower opt-out rates.
Persistency projections have increased from an original 2010 prediction of 50 per cent to 78 per cent.
TPR plans to get a regular feed from HM Revenue & Customs’ (HMRC) Real-time Information (RTI) system to allow it to improve its targeting of employers with eligible workers
The report says the programme is currently on budget. The DWP originally expected implementation of the programme to cost £1.1bn. It reduced this to £1bn in its 2015 estimate, largely because of reduced costs of TPR. Programme spending is on profile at £554 million to the end of March 2015, which is around half of total budgeted costs. The DWP estimates that employers will spend £500m setting up automatic enrolment and £140m each year on administering automatic enrolment.
In the 12 months ending 31 March 2015, Nest Corporation, the trustee of the Nest pension scheme, reported income of £18.5m and incurred expenditure of £98.7m, with the funding deficit being met by the loan.
So far the DWP has spent £34 million on communications and raising awareness. It plans to spend a further £60 million by 2018.
A DWP spokesperson says: “As the NAO themselves have said, the roll-out of automatic enrolment has been highly successful. The roll out is continuing exactly as planned.”
Hargreaves Lansdown head of retirement policy Tom McPhail says: “This is an entirely sensible precaution. Without it, there would be the risk of severe reputational damage to the entire auto-enrolment programme. Effectively, Nest now stands alone as the sole pension provider for the best part of 2 million micro-employers; there is nowhere else they can turn to meet their statutory obligations without having to pay significant administration fees. If Nest’s systems were unable to cope, or even if they were subject to a cyber-attack, the auto-enrolment programme could swiftly descend into chaos.”
Aegon regulatory strategy director Steven Cameron says: “Ensuring small and micro employers have workers enrolled into a workplace pension may be ambitious but imposing a temporary stop to auto-enrolment should only be considered as a last resort.
“While the process is without doubt challenging, the most important thing is to plan ahead. For employers who already have a pension scheme, their provider will be working with them to make auto-enrolment as smooth a process as possible.
“Employers who have never engaged and have never offered a pension scheme face the biggest challenge. The Government’s priority should be focussing on this group. And I expect ‘Workie’ will be looking for any help he can get from pension providers to keep pushing the auto-enrolment message.”