Why wait for auto-enrolment
TISA is today calling for the Government, employers and the pensions industry to work together to bring the benefits of automatic enrolment into workplace pensions to the UK’s workforce as soon as is practical.
Applauding the Government’s recent success in confirming that automatic enrolment into all forms of existing workplace pension is consistent with EU law, TISA is seeking to encourage the key players to bring forward the advantages to the public of long term savings from the launch of Personal Accounts in 2012 to right now in 2008.
To make this possible, all the Government needs to do is define Workplace Pensions in legislation in a way consistent with the agreement they have achieved with the European Commission. This could be done via a small amendment to the Pensions Bill going through Parliament currently.
Employers operating workplace pension schemes could then choose to automatically enroll all of their employees or perhaps all new employees when they join, leaving these people free to opt out if they want.
Starting to save four years early can make a big difference to employees who chose not to opt out – easily increasing the amount saved towards retirement by as much as 25%, if not more.
TISA Director-General, Tony Vine-Lott said:
“Nearly 5 million people are not taking advantage of working for a company that offers a workplace pension. This move could play a pivotal role in getting more people benefiting from saving now, rather than having to wait until 2012.” Malcolm Small, Director of Portfolio & Retirement Planning at TISA said: “The Government’s success with the European Commission means that there is now no good reason to delay the benefits of auto enrolment, one of their key pension reforms, until 2012.”
NOTES TO EDITORS:
1. Four years can make a huge difference to a worker’s ultimate retirement pot. For example, a 40-year old who retires at age 65 and contributes £200 a month starting now would accumulate a pension pot of £142,000 (fund grows at 6% net of charges). If the same person waited until they were age 44 before starting, their fund retirement pot calculated on the same basis would only be £104,000 – over a quarter less.
2. Introducing automatic enrolment now would offer many benefits to employees and employers:
• Thousands more people would be saving for retirement now rather than waiting until 2012, gaining an increase in their retirement fund of up to 25% or more.
• Employers who chose to introduce automatic enrolment now would already be operating on the correct basis in 2012.
• It could be used to increase take-up rates gradually, for example by employers applying automatic enrolment for new employees only. This would allow employers to manage the cost increase gradually rather than face a ‘big-bang’ situation in 2012, when they will have to automatically enroll non-joiners.
3. The Department for Work and Pensions confirmed on 16th May 2008 that automatic enrolment would be allowed into Workplace Personal Pensions (WPPs) – http://www.dwp.gov.uk/mediacentre/pressreleases/2008/may/pens068-160508.asp
4. WPPs are likely to be defined as personal and stakeholder pensions to which an employer contributes a minimum percentage of earnings.
5. The reason that automatic enrolment is currently not allowed into WPPs is that the current UK interpretation of the Distance Marketing and Unfair Commercial Practices Directives prevents financial services contracts (personal pensions for example) from being concluded on an opt-out basis. The UK interpretation is that UK consumers must have been made aware of the full contract terms and conditions and must make a positive decision to enter into the contract (opt-in).
6. The DWP has now received confirmation from the European Commission that automatically enrolling employees into WPPs is consistent with EU law. Given that other forms of UK company pensions already allow automatic enrolment, this means all employer sponsored pensions are now eligible.
For more information visit www.tisa.uk.com or email enquiries@tisa.uk.com
For more information, please contact: John Rowland, Cicero Consulting +44 207 665 9539 or john.rowland@cicero-europe.com
Tony Vine-Lott, Director General TISA +44 1372 374 728 or 07790 006108 or tony.vinelott@tisa.uk.com
Malcom Small, Director of Portfolio & Retirement Planning TISA +44 7989 500 771 or malcolm.small@tisa.uk.com