Workplace pensions are facing “significant risks” as smaller employers are being forced to take on the pension auto-enrolment, according to a report carried out by the National Audit Office (NAO).
58,000 employers have put 5.4 million people into workplace pensions because of the automatic enrolment, which came into being in 2012. The aim is to help with the ‘old age savings crisis.’
The scheme originally started with larger employers, because they usually have more experience when it comes to pensions, also they are more than likely to have the most employees. Recently it has been announced that a further 1.8 million smaller employers will have to automatically register their workers by 2018. Employers with less than 50 members of staff will have to follow the scheme.
Nearly 900,000 employers who have been forced into the pension’s auto-enrolment have just one or two workers, an example of this is a person who will only employ a nanny or carer. Under the pension’s auto-enrolment, the employers must register people who are working in the UK that are earning more than £10,000 per year. They must be under a state pension age (typically over 22 years old.) In the long run, 9 million people are expected to be saving more or recently saving in a workplace pension.
The Government have recently started an awareness drive aimed at smaller employers featuring a giant purple creature known as ‘Workie’. However, many leaders of small businesses are still anxious about implementing the pensions largely because of a lack of experience.
The National Audit Office has said; whilst the Department for Work and Pensions (DWP) has effectively introduced the automatic enrolment into workplace pensions for the large employers and medium-sized employers, there are still “significant risks ahead.”
According to the Pensions Regulator, the expected amount of small employers that will take part in the automatic enrolment will be 1.3 million. However recently the figure has increased to 1.8 million due to new start-ups rising up and existing SMEs doing well.
The NAO have also said that with the increasing numbers, pressure will be put onto the Pensions Regulator who is overlooking the auto-enrolment, and Nest ‘roll-out.’ The scheme was designed to assist employees when finding and meeting their new duties.
Head of NAO, Amyas Morse has said that; “the automatic enrolment programme has delivered value for money, and the DWP, the Pensions Regulator and Nest have worked closely together and have a clear understanding of their roles.” He continued: with “the volume of smaller employers will impose significant pressures.” Currently, the amount of people opting out of the auto-enrolment has been lower than first thought, the opting out rates are ranging from 8% to 14%. Before these new stats, the rate was first estimated at 28%
However, in the future the scheme must provide those who are enroled with enough money to sustain their life, as the average age of life expectancy grows to 81.5 years old, the more expensive it becomes to survive.
The Department for Work and Pensions (DWP), initially expected the system to cost approximately £1.1 billion, however in 2015 the estimation was dropped to £1 billion as ‘everything was running on track.’
A spokesman at DWP has commented saying:
“We welcome the NAO’s recognition of the success of automatic enrolment. Great strides have been made with the enrolment of more than five million people into a workplace pension.
“As the NAO makes it clear, the challenge now is to make sure hard-working people at every type of employer get to enjoy this major financial benefit.
“This Government is committed to providing security for working people at every stage of their lives, and that includes giving people the chance to plan for a financially secure retirement. Continuing to prioritise the successful roll-out of automatic enrolment is a big part of this.”