The duty for employers to auto-enrol staff into pension schemes will be rolled out over three years from October 2012 and not over 18 months as had previously been indicated.
Between 2012 and 2015, minimum contributions will be 2 per cent of qualifying earnings in total, of which 1 per cent must come from the employer. Between October 2015 and October 2016, they will be 5 per cent of which 2 per cent must come from the employer. It will be October 2016 before minimum contributions reach 8 per cent of which 3 per cent must come from the employer.
Paul Macro, senior DC consultant at Watson Wyatt says: “The Turner report envisaged that auto-enrolment would begin in 2010. The start date had already been put back to October 2012 for large employers and April 2014 for the smallest employers. Now, it will be October 2015 before the new rules apply across the board.
“It’s hard to see why practical considerations can justify a three-year delay for small employers but not even a short one for large employers. The Government has known since 2006 that it would need to take decisions on a range of issues which could make a big difference to employers who voluntarily contribute more than the minimum levels. Compressing this into six weeks to suit the procurement timetable is letting the tail wag the dog.”
ABI director of life and savings Maggie Craig says: “Botched implementation of the Pensions Act will put the success of the reforms at risk. It was always understood that some phasing was necessary, but the four-year delay before contributions rise to 3 per cent is unacceptable. It means that no employer will have to pay more than 1 per cent until October 2015 – the rate of saving for people in the scheme will move at the pace of the slowest. As things stand, employers may be encouraged to ditch private schemes, which benefit from higher contributions, in favour of the state-backed scheme where they could pay just 1 per cent for at least three years, with Government approval. So, at a time when Britain is not saving enough, the crucial first few years of the new system will see less saving.
“And the consultation time for these regulations has been arbitrarily cut in half by the DWP, from 12 weeks to just six. We urge the Government to think again on these unacceptable regulations, in the interests of Britain’s current and future savers.”