Auto-enrolment pensions are now being implemented across the UK – part of an on-going effort to encourage retirement saving and avoid a looming pensions crisis. Research has suggested the new pensions system is off to a good start, with a high level of workplace awareness and an uptake-level of 82% predicted for 2013.
Charles Cotton, rewards adviser for the Chartered Institute of Personnel and Development, hailed the uptake trend, but warned of problems on the horizon:
“It looks likely that automatic pension enrolment will significantly boost the numbers of employees saving for retirement,” said Cotton, “but given the cost of pensions is a major business outlay, it’s disappointing that so few employers have started collecting data to assess the impact these reforms may have.”
Tough choices ahead…
Preparing for the effects of auto-enrolment is important, the CIPD argues, since, by 2018, around 11 million people will be affected by the new system. The practicalities and costs of auto-enrolling employees will present employers with a number of tough choices and complicated governance issues. With this in mind, The Pensions Regulator introduced a new regulatory framework in January, setting out six principles and 31 guidelines to ensure employees are entered into the best possible auto-enrolment schemes and have the option of the best annuity when they retire.
Over the next few years, the rest of Britain’s employers will be added to the auto-enrolment programme, but concerns have been raised that the ‘opt out’ dynamic (in which employees have to actively remove themselves from a scheme) will lead to many savers being forced to take high-charging, unsuitable pensions. Chief executive of the Pensions Regulator, Bill Gavin, called auto-enrolment a “game-changer” and “a challenge, even for existing schemes.”
“We have set standards to help us have the difficult conversations with those who are not getting it right,” Galvin added.
Those standards go further than measures to ensure employees are opted-in to the right scheme. Independent trustees, appointed to manage pensions will be required to make “value for money” savings and investment choices – and ensure associated fees and charging structures are transparent to all scheme members. This transparency extends all the way to retirement, when employers must make employees aware of the wide range of annuities available to them – rather than a default purchase of the annuity offered by their provider.
Pension governance is complicated – and the ability of the trustee to act independently and in the best interests of employees is paramount. The Regulator‘s new framework is intended to ensure the independence of the trustee/employers relationship is maintained – making employers aware of the potential conflicts of interest which may arise by appointing trustees who cannot deliver the professional distance required.
With more and more Britons living longer, auto-enrolment has been hailed as a step in the right direction towards getting millions of employees to begin saving for their retirement. The effectiveness of the new system will rely on the ability of employers to maintain confidence in their workplace pension schemes – enhancing their own reputation and encouraging employees to continue the positive uptake trend.