Written evidence from the Department for Work and Pensions (PAE0024)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


Introduction

 

  1. Automatic enrolment is part of a wider set of pension reforms designed to ensure that the UK has a pension system that enables individuals, with the help of their employers, to save towards achieving the lifestyle they aspire to in retirement and which is sustainable into the future. Once fully implemented, automatic enrolment aims to increase the number of individuals newly saving or saving more in a workplace pension by around 9 million, and increase the amount that is being saved in workplace pensions by around £15 billion a year. It aims to establish pension saving at work as the norm for all employers and employees.
     
  2. The Department for Work and Pensions is responsible for the policy framework and is accountable for the successful implementation of the Government’s workplace pension reforms. The Automatic Enrolment Programme commenced in October 2012, delivering:

 

Employers are being ‘staged’ by size, starting with the largest, from October 2012 to February 2018. Increases in contributions to pension schemes are being phased in over time, to provide a period of adjustment for employers and individuals, with full contributions being paid from April 2019.

 

  1. The Department is aware that the Regulator and NEST will submit separate written evidence to the Committee, to reflect their roles in delivering automatic enrolment.

 

Effectiveness of the automatic enrolment process

  1. Large and medium employers have already successfully implemented automatic enrolment. By 31 December 2015, over 5.8 million eligible workers had been automatically enrolled by their employers into qualifying workplace pension schemes by almost 79,000 employers. Most people are staying in saving, with low opt-out rates at around 10 per cent. In Automatic Enrolment commentary and analysis: April 2014-March 2015, the Regulator reported that, among those small and micro employers who had used its website, most found it useful - ranging from 92% of small employers to 82% of micro employers.
     
  2. The decade long downward trend in pension saving has reversed since 2012. Data from April 2014 show that the number of eligible workers saving into a workplace pension scheme has increased to 13.9 million, a rise of around 3.2 million. The Department has provided further analysis of participation and savings trends of eligible employees in Official Statistics on workplace pension participation and saving trends of eligible employees 2004-2014 (July 2015) and the Automatic Enrolment Evaluation Report 2015 (November 2015).
  3. At 10 January 2016, NEST had over 2.6 million members, more than 39,000 participating employers and in excess of £650 million of funds under management. NEST is successfully delivering against its public service obligation to accept all employers. There is no charge for employers to use NEST to meet their automatic enrolment duties. 
     
  4. The Automatic Enrolment Programme has continued to deliver to time and budget. The National Audit Office reported in Automatic enrolment to workplace pensions (November 2015) that the Programme has been successfully introduced and is on track to deliver value for money for improving retirement incomes. Overall programme costs are just under £1 billion. Following implementation, pension savings will be around £15 billion a year.

Information learnt so far
 

Individual opt-out rates
 

  1. Individual opt-out rates are important indicators of automatic enrolment’s success in increasing participation in pension saving. To date, the number of workers choosing to opt-out, after being automatically enrolled into a workplace pension, is significantly lower than expected and is one of the success stories of automatic enrolment.
     
  2. Data published in the Automatic Enrolment Evaluation Report 2015, suggest that about 10 per cent of individuals automatically enrolled have chosen to opt-out. In 2014 the opt-out assumption across the lifetime of the Programme was changed from 28 per cent to 15 per cent. This struck a balance between the available evidence on opt-out rates, and the possibility of the rates increasing as the implementation progresses to small and micro employers. This revised estimate means that one million more people are likely to be saving in a workplace pension for their retirement.
     
  3. The Department’s research suggests that opt-out is higher among part-time workers than full-time workers. Across all types of workers that have opted-out, affordability of contributions was one of the most common reasons given. The research also suggests that opt-out is higher than average for older workers and slightly lower than average for younger workers. Common reasons for opting-out among older workers are that retirement was too close to consider a long term savings plan or they already had sufficient provision in place. However, working and saving a few more years into a workplace pension in which a worker, regardless of age, receives both employer contributions and tax relief could make a difference to their retirement income. The new pension flexibilities, and the introduction of the National Living Wage from April 2016, will help to make pension saving more attractive to all and particularly this group of older workers.

 

Employer compliance
 

  1. Employer compliance levels have been high to date, with over 99 per cent of large employers completing their declaration of compliance.
     
  2. The Regulator’s ‘educate and enable’ approach has allowed it to support the overwhelming majority of employers to comply with their automatic enrolment duties ahead of having to take compliance action, in particular through targeted communications and support tools. The Regulator continues to be data and intelligence led, assessing how to adapt enforcement journeys, so they are targeted and proportionate to the employer and the circumstances of each case.
     
  3. Where employers fail to comply because they have not understood their duties, or have not been able to comply with them, the Regulator’s initial response is to support them to become compliant. However, intentional non-compliance is unacceptable. Where employers fail to comply with their legal obligations, the Regulator has enforcement options to ensure compliance, ranging from warning letters, statutory compliance notices and monetary penalties, to criminal prosecution.

 

The small and micro employers phase

  1. The Programme has now entered its most challenging phase. Small and micro employers began staging in small numbers in June 2015, but from January 2016 to February 2018 they will be staging in large volumes.
     
  2. The Government currently estimates that about 1.8 million small and micro employers may have to complete automatic enrolment by 2018 and that the number starting the process will peak between July and September 2017.  Forecasts are subject to ongoing review and amendment, but volumes are expected to escalate considerably over the next two years. 


Challenges for small and micro employers
 

  1. Within the group of 1.8 million small and micro employers expected to complete automatic enrolment by 2018, there are an estimated 1.2 million employers with fewer than five workers; enrolling their workers into a pension will be a new experience for many of them. Research has shown that small and micro employers are more likely to see themselves as individuals rather than organisations. In reality, many of the smallest employers are not running commercial enterprises, but are employing workers such as nannies, gardeners and personal care assistants.   
     
  2. Large and medium employers have successfully implemented automatic enrolment with the help of in-house expertise and third party advisers, such as employee benefit consultants. However, small and micro employers are likely to find automatic enrolment more challenging because they will not have the same level of infrastructure to manage their finance, payroll and HR functions, or sufficient time to acquire knowledge of pension schemes and study the details. Many small and micro employers have close working relationships with their employees, and they want to make the right decisions when choosing a suitable pension scheme for them. Others are concerned about the cost of setting up and operating workplace pension schemes.
     
  3. Small employers need support from the Regulator, intermediaries (such as advisers, accountants and bookkeepers) and pension providers which is designed to make automatic enrolment as straightforward and as quick as possible for them, allowing them to focus on running a business or getting on with their day-to-day lives.

Market capacity

  1. Ensuring that there is sufficient capacity within the pensions industry to support the roll out of automatic enrolment to small and micro employers remains a key priority for the Department. At paragraph 3.5 of Automatic enrolment to workplace pensions, (November 2015) the National Audit Office commented that:


“The increase in the number of employers will place significant pressure on both The Pensions Regulator and the National Employment Savings Trust (NEST).”

Both the Regulator and NEST have recently improved their processes and services in preparation for this phase, and the Programme is working with them to provide assurance that plans are in place to maintain service levels during periods of high demand. 

  1. Currently, a significant number of pension providers are operating in the market and employees have a choice of schemes. The wider pensions industry also has a role to play in ensuring the success of automatic enrolment and pension flexibilities; it has responded positively by developing new products and services. 
     

Support for small and micro employers

 

  1. In preparation for small and micro employers undertaking their automatic enrolment duties in greater numbers from January 2016 onwards, the Programme undertook a significant piece of work through 2015 to improve the processes specifically for smaller employers. This has been informed by user testing, research, analysis and input from the Cabinet Office’s Behavioural Insight Team. Key planks of these improvements are ongoing improvements to letters, communications and language used by the Regulator, including simplifying and reducing formality or jargon. These are in conjunction with a new communications campaign: Don’t ignore the workplace pension, which is targeted at small employers and their staff; development of a microsite; and a programme to simplify guidance provided to employers by the Regulator. The Programme continues to seek further improvements to the processes and communications.
     

Communications to raise awareness
 

  1. The communications activity to date has helped to develop a strong awareness of automatic enrolment. The Department’s May 2015 communications tracker survey, found that almost two thirds of working adults (63 per cent) agreed that “saving into a workplace pension is the normal thing to do if you have a job”, with 79 per cent of all working-age adults interviewed being aware of it. The campaign also helped to increase positive attitudes towards workplace pensions, and almost two-thirds (61 per cent) of working adults agreed that a workplace pension is a “good thing for me”.
     
  2. While the We're all in campaign has been successful in increasing pension saving and establishing workplace pensions as normal for those who work, it was targeted at individuals working for large and medium employers. Given this focus, testing and evaluation showed that it did not resonate well with small and micro employers and their employees, who thought that it was not relevant to their circumstances and only applied to large businesses. While employer duties affect all employers, the Government recognises that there is no one size fits all approach to reaching them, so campaign messages and approaches tailored for different audiences are essential.
     
  3. The new campaign - Don't Ignore the Workplace Pension - was launched in October 2015 and it takes a different direction, following evaluation and testing with small and micro employers and their employees. This is a new audience with diverse needs and priorities; the campaign is deliberately disruptive and is specifically designed to raise awareness, prompt small and micro employers to find out about their duties and start the automatic enrolment process. It complements the Regulator’s bespoke direct mailings to employers as they reach key dates, helps employers and intermediaries (such as accountants and bookkeepers) find the information they need for particular circumstances and directs them to bespoke journeys through the Regulator’s new Step by Step process. The campaign also aims to normalise pension saving among individuals, and provide further information about the benefits of a workplace pension.
     
  4. The campaign includes television, radio and online advertising aimed at encouraging employers to access the dedicated microsite: www.workplacepensions.gov.uk, and progress through to the automatic enrolment process.
     
  5. The Regulator’s radio advertisement achieved strong recognition among small and micro employers; these employers want to be told what to do and they responded positively to the message “It’s the law”. The radio script has been amended very little since the previous campaign; it continues to maximise impact and encourage compliance. 
     
  6. Early indications on the success of the campaign have been promising. At 23 December 2015:
     

 

  1. The campaign started to build again from 4 January, with 3 weeks of television advertising to support the first major staging tranche of small and micro employers. This is being followed by radio and online advertising during February and March. The Department and the Regulator will continue to apply lessons learnt as automatic enrolment progresses, and to tailor the campaign accordingly.

 

Simplification to assist employers with the automatic enrolment process

 

  1. In October 2015, the Regulator refreshed its website and launched a new, shorter Step by Step online journey. This was designed following extensive research with small and micro employers, to make the compliance process as straightforward as possible. The Regulator has also simplified and tailored all offline content (letters and guides) to ensure that messages about what employers need to do are easy to follow. 
     
  2. The Department also recognises that some employers have different requirements to help them comply with their duties, so a series of tailored journeys has been designed for them. These include employers of personal care assistants and other domestic workers, those who actually employ nobody at all and people who have difficulty using an online solution. 
     
  3. The Government introduced regulations - The Occupational and Personal Pension Schemes (Automatic Enrolment (Amendment) Regulations 2015 (SI 2015/501) that came into effect from April 2015, to simplify the process of automatically enrolling eligible jobholders into a workplace pension and reduce the duties of employers. The changes were to:
     

 

Further simplifications
 

  1. The Government continues to explore ways of further improving automatic enrolment processes. It recently launched a consultation on introducing a number of minor technical changes in secondary legislation, Technical Changes to Automatic Enrolment – consultation on draft regulations (26 January 2016). These are:

 

 

Employers of personal care assistants
 

  1. The Department recognises that some individuals, such as those who employ personal care assistants, may face additional challenges in complying with automatic enrolment duties. The Step by Step process and its offline support and communications have been tailored specifically to their circumstances. The Regulator’s Industry Liaison Team is working closely with charities and user-led organisations who offer support and services to these employers. The Regulator is also developing an offline journey for those who need it, and it is signposting NEST and its public service obligation to employers of personal care assistants and employers of workers in the home, to make scheme choice easier. If an employer self-identifies as an employer of personal care assistants, the Regulator provides a tailored journey and letters. The letters contain the customer support telephone number, so they can ring up for additional help and guidance.
     
  2. A team at the Regulator has worked with local authorities and organisations that support people employing personal care assistants, to ensure they are properly informed and can access help with the process. In addition, the Minister for Pensions hosted a roundtable meeting and held individual discussions with organisations supporting people who employ personal care assistants and nannies or a home help, to understand their issues and what support they will need to meet their automatic enrolment duties. 

 

Advice on choosing a pensions scheme
 

  1. A priority has been to reduce the need for employers to seek advice. For example, the Regulator’s research showed that selecting a pension scheme is one of the biggest concerns of smaller employers. To help them choose, the Regulator has published on its website a list of independently reviewed ‘master trusts’ pension schemes. NEST is included on the list, and it highlights that NEST has a public service obligation to accept any employer. The list will be maintained and updated on an on-going basis. The Regulator also provides links to Group Personal Pensions through a list on a linked page of the Association of British Insurers (ABI). It has updated its guide to provide further information to employers on the details they may wish to consider when selecting a scheme, such as the charges to members and the employer, services offered and whether it will work with the employer’s payroll software.
     
  2. Individuals do not choose their workplace pension scheme, so the Government wishes to ensure that their employers are equipped with the necessary information to make an informed decision on their behalf. One important consideration for employers when choosing a scheme is that of how a scheme operates tax relief on pension contributions. There are two mechanisms for operating tax relief, and either mechanism may be more or less suitable for a given employer, depending on the characteristics of their workforce. If employers use a scheme that runs on ‘net pay’ arrangements, then staff earning less than £10,600 a year (or less than £11,000 from April 2016) cannot get tax relief from the Government. If employers choose a scheme that operates ‘relief at source’ then all their low paid staff will be able to have tax relief. The Regulator has recently updated its guidance to employers and advisers, to highlight which schemes operate a ‘net pay’ versus ‘relief at source’ method of tax relief. This accompanies the guidance to employers about considering the implications for their workers of tax relief arrangements of the scheme they choose. Pension providers and payroll services are also offering support, and the majority of employers will not need to pay for advice.

 

NEST
 

  1. NEST was set up by the Government specifically to ensure that every employer would have access to a high-quality workplace pension scheme for automatic enrolment. It continues to be free for employers to use and it has an award-winning investment approach. To ensure that it can continue to deliver and support employers NEST updated its services at the end of September 2015, to make it quicker and easier for employers to set up and run its scheme. Further service improvements in October 2015 included making it possible for small employers to set up and run a NEST pension scheme directly through their payroll software. Employers who need to access one-to-one support when setting up with NEST can also access live help via a web chat. 
     
  2. NEST Connect has been developed to help intermediaries meet growing demand for automatic enrolment services from small and micro employers. NEST Connect also helps specialists and payroll bureaux to offer an end to end solution, from assessing workers through to making payments. NEST plans to continue enhancing its services, to meet the needs of employers and members.


Engagement with employers and those who support small employers

 

  1. Many small employers will turn to intermediaries, such as accountants and bookkeepers, for help to implement automatic enrolment. The Department and the Regulator works closely together to raise awareness and understanding with intermediaries, to reinforce the importance of their role in supporting smaller employers to implement automatic enrolment.

 

  1. The Regulator has a dedicated Industry Liaison Team which participates in industry events, speaking directly to providers, intermediaries and employers wanting to know more about automatic enrolment. The team organise webinars where employers can ask their questions directly. It educates intermediaries, such as accountants and other business advisors, who can then spread accurate messages about automatic enrolment and employer duties to their clients. During the last year, the team organised over 500 meetings with intermediary firms and spoke at over 300 events all around the UK. The team has also developed relationships with trade bodies and business organisations, such as the Federation of Small Businesses and the Chambers of Commerce, to provide them with articles and other materials for use in their publications and as digital communications. 

 

  1. The Minister for Pensions has also spoken about automatic enrolment at several conferences and industry events. The Department engages regularly with pensions providers, to ensure consistent and coherent messages are received by employers, and to learn about progress and early warning signs of changes in the pensions industry. The Department and the Regulator have also supported MPs who have held awareness sessions in their constituencies.

 


 

Payroll Support
 

  1. The Regulator has published guidance to help small employers understand what support they can get from their existing payroll software, and also points to consider when choosing a new software package, if they need to.
     
  2. For those employers who do not use payroll software (including users of HM Revenue and Custom’s Basic PAYE tools) the Regulator has, following consultation, introduced an AE Basic Assessment Tool. This is suitable for the very smallest employers; it helps them to know which of their workers they should automatically enrol, what communications to send and it calculates pension contributions.
     
  3. Additionally, the payroll software industry, with input from the Regulator, the Department and pensions providers, has developed a data standard for the exchange of automatic enrolment data (known as PAPDIS). This standard, where adopted, aims to reduce the number of data interface files to be maintained. It is still early days, but at least one services company now offers a data conversion service based on PAPDIS, which allows pensions and payroll software providers to exchange data without having to implement PAPDIS in their own software.

 

Experience of automatic enrolment for small and micro employers

 

  1. Small and micro employers started staging in large numbers from January 2016. The Department and the Regulator will continue to test and learn what works best to support small employers with their automatic enrolment duties, developing the communications campaign and adapting other improvements implemented in Autumn 2015, as required.
     
  2. The Automatic Enrolment Evaluation Report 2015 found that levels of awareness and understanding among the first group of small and micro employers (starting in June 2015) were comparable to those of large and medium employers surveyed at the same interval before their staging date. It reported awareness among small employers at 98 per cent and at 94 per cent among micro employers; 90 per cent of small employers had understanding and 88 per cent of micro employers had understanding.
     
  3. The 2015 evaluation report also found that the level of awareness and understanding among the groups of small employers starting in August and October 2015 was 99 per cent for awareness and 92 per cent for understanding, levels which are similar to earlier tranches of large and medium employers. So far, around 92% of employers in the June 2015 stage are compliant. We will continue to monitor the experience of small employers closely and adapt the support available to them, to help make automatic enrolment as simple and straightforward as possible for them.


Expanding the scope of automatic enrolment and encouraging more contributions
 

  1. The automatic enrolment earnings trigger, currently £10,000 a year, is one of the key criteria for determining whether a worker is automatically enrolled into a workplace pension. The Pensions Act 2008 requires that the earnings trigger, along with the lower and upper thresholds that determine qualifying earnings, are reviewed each year.
     
  2. The annual review takes into account the prevailing thresholds of National Insurance contributions, PAYE personal tax allowance, basic state pension and inflation, and any other factors that the Secretary of State considers relevant. The review also considers the impact of changes to the trigger and thresholds on groups that are less likely to save under automatic enrolment, particularly women.
     
  3. The decision to freeze the automatic enrolment earnings trigger at £10,000 in 2016-17 was announced in December 2015. The lower limit of the qualifying earnings band will remain at £5,824, while the upper limit will increase to £43,000 in order to remain in line with the National Insurance thresholds.

 

  1. Freezing the value of the automatic enrolment trigger at £10,000 in 2016-17 results in a real terms decrease in the trigger, because of the relatively strong projected improvement in earnings growth in 2016-17 (which includes the positive impact of the introduction of the National Living Wage). This brings an additional 130,000 individuals into the automatic enrolment population, of whom around 91,000 (71 per cent) are women, and an associated increase in pension saving of £6 million in 2016-17.

 

  1. The Government has provided a right to opt-in to a workplace pension for people who are not automatically enrolled because their earnings are below the trigger. They will receive a contribution from their employer as long as they earn above the lower limit of the qualifying earnings band.

 

  1. Employers are required to provide information to individuals about their opt-in rights, and we would expect awareness of this opportunity to increase as our communications campaign around Automatic Enrolment continues. Data published in the Automatic Enrolment Evaluation Report 2015 show that 6 per cent of workers ineligible for automatic enrolment have already opted-in to a workplace pension.
     

Reducing regulatory burdens - increases to minimum contributions postponed
 

  1. Automatic enrolment minimum contribution rates were scheduled to increase from 2 per cent to 5 per cent in October 2017, and then to 8 per cent in October 2018. In November 2015 the Government announced plans to align these increases with the start of the tax year, meaning that they will take effect six months later, in April 2018 and April 2019 respectively. This measure will give all employers, and smaller employers in particular, more time to prepare. It will reduce their administrative burden by aligning changes with the start of the tax year. Also, aligning these changes with the tax year coincides with when individuals are used to seeing changes in their take-home pay and increased personal tax thresholds take effect; so the impact on take-home pay will be reduced by increased tax thresholds, and it might help individuals to continue their pension saving as contribution rates increase.
     
  2. The change will be introduced in regulations this autumn, subject to Parliamentary approval, with the aim of taking effect before October 2017, when the minimum contributions were scheduled to increase under the current timetable.
     

Ensuring automatic enrolment schemes are credible and offer good value

  1. The Government recognises that automatic enrolment will create many more pension savers. It is taking wider steps to ensure that individuals’ pension schemes operate in a transparent and fair way, offering clarity on charges and value for money.
     

Pension charges, transaction costs and governance
 

  1. The Government has taken action to ensure that pension savings are invested in value for money schemes that are well governed and administered in members’ best interests. The Occupational Pension Schemes (Charges and Governance) Regulations 2015 (SI 2015/879) introduced a charge cap of 0.75 per cent applying to all member-borne deductions, except for transaction costs, on the default funds of schemes used for automatic enrolment. They also banned active member discount structures in qualifying schemes, so that the pension savings of members no longer contributing to a qualifying scheme will not be subject to higher charges than if members were still contributing. Financial Conduct Authority rules, which also came into force in April 2015, reflect these measures for workplace personal pensions and extended the ban on member-born charging for advice to employers (consultancy charging) to all qualifying schemes.

 

  1. Since April 2015, trustees are also required to report on costs and charges in their pension scheme, along with their assessment of the value for money delivered by the scheme. Independent governance committees will be required to report on the same areas in workplace personal pensions.

 

  1. In March 2015, the Government and the Financial Conduct Authority published a joint call for evidence, Transaction Costs Disclosure: improving transparency in workplace pensions on better disclosure of transaction costs in workplace pensions. The responses have been reviewed and next steps are being considered. The Government will consult on regulations banning existing commission arrangements in these schemes later this year. In 2017 it will examine whether some or all transaction costs should be included in the default fund charge cap and whether the level of the cap should be changed.
     



 

Wider pension reforms


New State Pension
 

  1. A key aim for the design of the new State Pension is to provide clarity for people on how much they can expect to receive as State Pension. The new system will give individuals, from an early point in their working life, a clearer idea of the support they will receive from the State in later life. This will help people to judge how much additional saving they will need to make in addition to what they will receive from the State.
     
  2. The new State Pension works with automatic enrolment, which is enabling many more people to save in a workplace pension. The new State Pension and automatic enrolment, along with reviews of the State Pension age, are designed to form the main elements of a secure and sustainable basis of retirement income in the decades to come. The Department is joining up messages through its pension campaigns and communication products on new State Pension and automatic enrolment as appropriate.
     

Pension flexibilities
 

  1. The Government believes that people who have worked hard and saved all their lives should have the freedom to decide how and when to use their savings.  In January 2016, HM Revenue and Customs reported that 188,000 individuals have received a flexible payment since the flexibilities were introduced in April 2015, with 374,000 payments made in total. The total value of these payments is around £3.5 billion.
     
  2. The 2015 Budget included an announcement about a plan to introduce freedom and choice to those people who had already purchased an annuity, widening the future scope of the pension flexibilities. The Government plans to introduce legislation to allow an individual to assign their income stream to a third party in return for a lump sum. The lump sum could then be used in other ways or it could buy an alternative retirement income product, where it could be drawn down by recipient over a number of years and be taxed in the same way as pensions taken after April 2015. Subject to Parliamentary approval, these changes will come into force in April 2017.
     
  3. The Government believes that it is important for individuals to have the right to make decisions about their own savings according to their circumstances and priorities. The Government is addressing concerns about early exit from the labour market and working to encourage a cultural shift from the assumption that there exists a retirement ‘cliff-age’, where an individual works full-time until a specific retirement age then stops work entirely. The Government will continue to challenge outdated perceptions, and promote the business case and benefits of retaining and recruiting older workers. A working group of employers with an interest in this area has been established, to drive changes that improve the retention, retraining and recruitment of people aged over 50.

     

Information and guidance

 

  1. The Government does recognise that there is a need to support the millions of individuals who have been encouraged into pension saving by automatic enrolment. Pension Wise was launched in March 2015 to deliver the Government’s commitment to provide free and impartial guidance to those eligible to take advantage of the pension freedoms announced in the 2014 Budget. Guidance is available online, over the telephone (through the Pensions Advisory Service) and face to face (through Citizens Advice Bureaux). The service helps people aged 50 and over with a defined contribution pension to understand the options available to them and make informed next steps. Since its launch in March 2015, there have been over 2 million visits to the website and over 47,000 appointments.
     
  2. Two Government consultations in October 2015: Financial Advice Market Review and Public financial guidance: consultation, consider how access to financial information, guidance and advice can be improved for the individual. Both consultations are expected to report in March 2016.
     
  3. Further information on both the remit of the review and the development of a dashboard, which could help improve member engagement, are in the Government’s response to the Work and Pensions Committee’s report on Pensions guidance and advice, submitted in December 2015.
     

Future of automatic enrolment

 

  1. The phasing of minimum contributions over the implementation period is an important mechanism for minimising any competition impact between employers with different dates for starting automatic enrolment. It also allows employers and individuals more time to get used to the additional cost. It is crucial to understand the impact of increasing contributions before setting any policy for increasing them further. We will continue to conduct research to understand why people opt-out of pension saving.
     
  2. The previous Work and Pensions Select Committee inquiry agreed that 8 per cent is a realistic starting point for automatic enrolment but commented that it was unlikely to be adequate in the long term. The Government acknowledges this and is keen to encourage saving beyond the 8 per cent minimum. However, it recognises the need to balance this with the fact that many individuals will not currently be saving at all, so requiring them immediately to save beyond the minimum may increase their perception that saving for retirement is an insurmountable challenge, which could lead them to opt-out.
     
  3. The Government has legislative commitments to review a number of specific aspects of Automatic Enrolment in 2017. These include a review of the NEST constraints which we have already legislated to lift in 2017, the operation of the charge cap for qualifying schemes, quality requirements for defined benefit schemes and how the certification requirements (which allow employers to use existing pension schemes to meet their automatic enrolment duties) are working. The Government is committed to a broader review of automatic enrolment policy in 2017, at the discretion of the Secretary of State.
     
  4. The Government wishes to work with interested stakeholders to determine the scope of the 2017 review. We realise that automatic enrolment alone is not enough to tackle the deficit of pension saving across the country, so the 2017 review will consider how to build on the success of the Programme to normalise pension saving. This will involve working closely across Government to monitor the way automatic enrolment interacts with wider pension and welfare reforms, and to ensure that the Government’s transformation of the pensions landscape continues to provide freedom and choice in how people save for their retirement access their pension savings.
     

Conclusion
 

  1. The Automatic Enrolment Programme has been very successful to date - exceeding original expectations - with people in employment increasingly seeing pension saving as the normal thing to do. In particular, evidence from the Trades Union Congress and the Federation of Small Businesses to the Public Accounts Committee hearing on automatic enrolment (23 November 2015) emphasised the broad level of support for the Programme.
     
  2. However, the Government cannot be complacent, as the vast majority of employers have yet to start the process of selecting a pension scheme and automatically enrolling their employees. We recognise that this group of employers face additional challenges in complying with their duties, because they will not have dedicated in-house experts to turn to and many will be engaging with workplace pensions for the first time.
     
  3. The Department continues to work with the Regulator and NEST, and the pensions industry, in seeking ways to support small and micro employers as they complete automatic enrolment. It is also engaging with other Government Departments, payroll service providers and representatives of small and micro employers. The Minister for Pensions sent letters and fact sheets to all MPs, to explain their automatic enrolment duties, and the Department recently organised a drop-in session for MPs, to offer further information and advice. It will ensure that safeguards for individual pension savers are in place and that they can access quality information and guidance, to make choices about their pensions that are right for them. The Government will also continue to engage with individuals who work for small and micro employers, to raise awareness of automatic enrolment and the need to save for later life; to encourage a positive attitude to workplace pensions and to encourage them to remain automatically enrolled.

 

February 2016