12 April 2018
This article was featured in the May 2018 issue of the magazine.
Samantha Mann MAAT, MCIPPDip, CIPP senior policy and research officer, delves into the review of AE and wonders whether the proposals will be aspirational or instructional
I recently heard a pension specialist comment that “employers should want to engage with their employees to support their commitment to saving for their future”. From a moral perspective I have no issue with that sentiment, after all I am an employee and would value that commitment. However, for many employers, particularly small and micro employers, the decision to engage with workplace saving has not been made by choice, or because of a strong moral or social conscience, but because it is the law.
These viewpoints came to mind as I considered the Department for Work and Pensions’(DWP’s) Automatic Enrolment Review 2017 (‘the Review’) (https://bit.ly/2GADADu).
Recent headline figures
9.1 million employees have been enrolled in workplace pensions
More than 980,000 employers have automatically enrolled jobholders
Over 540,000 workers re-enrolled by 37,000 employers.
The above headline figures mask the volume of work and commitment that has made automatic enrolment (AE) a success, which we know from talking to our members and other key stakeholders. The Review acknowledges this when commenting: “We recognise the crucial role that employers have played…”
I looked at the Review’s findings to see what, if any, recommendations would impact employers and those of us working in the payroll profession and industry.
And, researching for this article, I explored suggestions for behavioural tools and research to encourage employees, together with their employers, to take an active ownership and interest in their pension saving. Indeed, I would encourage you to look at the ‘Save More Tomorrow’ concept (see, for example, https://on.ft.com/2Ehrtp9). The Review recognises the challenges of attempting to roll this out on a large-scale basis, but nevertheless remained open to accepting that it and other ideas…remain potential options for the future…”
...crucial role that employers have played...
A comfortable mid-2020s deadline for some of the changes is welcome, but learning from our experience with the initial roll out of AE does not mean we can shelve this subject in favour of other more-pressing issues because, as we look ahead, it is the intention of the DWP to “build a renewed consensus to deliver the detailed design and implementation of our proposals”.
So, what are some of the Review’s proposals, and what do we need to watch out for this year?
Duties to continue to apply to all employers – It came as no surprise that AE duties will continue for all employers regardless of their sector or size.
Pension savings to become the ‘new normal’ for new employees – A reduction to the age criterion from 22 down to 18 ‘when most individuals start work’ will bring an additional 900,000 in to workplace saving and is predicted, once the initial learning and adaption to exiting processes is complete, to simplify the assessment process for employers and their service providers.
It is anticipated that this change will be implemented in the mid-2020s, but recognising that there will be an additional cost to the employer (and others)consultation will be carried out during 2018–19 to find ways to make these changes affordable and to make them happen.
Change the framework to remove the lower earnings limit – Employees would begin to contribute from the first pound they earn which will particularly help those who have multiple part-time jobs and currently may not contribute through any of their work.
Recognising that there will be a significant cost impact, the government has committed to reviewing the phased increases to AE from this month and ongoing to 2019, together with considering views and suggestions and evidence gathered during consultation.
Remove the ‘entitled worker’ category – It is predicted that by removing this third category, together with removing the lower earnings limit, there will be significant simplification to the administration process for employers and their advisors. This will result in eligible workers being automatically enrolled from the age of 18 and benefitting from employer contributions.
Research and consultation for the cost impacts of this change together with evidence gathering will happen as part of consultation in 2018–19.
Identify effective options to increase pension savings by the ‘under-saving’ self-employed – This work comes from the manifesto commitment made by government and builds on the work and recommendations of the Taylor Review. It will be interesting to see how the employer and the engager could be impacted by the outcome of this work.
Planning is key – We could continue to consider ‘nudge’ techniques and talk about ‘targeted interventions’ but more will follow and be revealed in consultation, and so we will have plenty of opportunity to discuss and debate these issues at the CIPP national forums and at our two annual conferences.
Your comments, views and experiences continue to inform this work and policy development. Please email me at [email protected] and watch out on our daily news feed, News On Line, for the consultation paper/s that will provide more detail on these proposals.