The government has recognised that exhortations on their own are not enough and for many people it is a help if they are "nudged" (or perhaps a better phrase is "shoved") into a savings mode. Hence the setting up of its automatic enrolment initiative, under which some 11 million workers will be automatically enrolled into a workplace pension arrangement, and into which they, and crucially their employer, have to contribute at least a minimum amount.
The government is buoyed by the "success" of automatic enrolment as they have seen much lower opt out rates than anticipated. However, this does not give the full picture as many employees are ceasing pension membership after the opt out window. The real test of success will be when SMEs have to start enrolling their employees throughout 2014 and 2015, before the requirements then move onto the micro employers.
So what lessons can we learn from the larger employers that have been through automatic enrolment and what challenges lie ahead?
Firstly, the complicated rules have meant some larger employers have struggled to get their processes right and they have had to dedicate additional resources in HR, Payroll and Finance to make sure they comply.
We have realised that automatic enrolment is not just about pensions: it is as much about processes. An employer will need a pension arrangement to put their employees into, but before they get to that point, there is a big administrative task that needs to happen.
And this administrative burden is ongoing - every time they run payroll, employers need to ensure they are following the rules.
So the problem for many SMEs is that they do not have dedicated in-house resources to devote time to this and they do not have the bargaining power of the larger corporate to establish competitively priced auto-enrolment pension schemes. Indeed, many of the traditional pension providers are not allowing some employers' existing pension plans to be used for auto-enrolment, citing poor profitability as the reason.
There has been some new pension providers devoted to the automatic enrolment space. NEST is the "catch all" provider as they have a public service obligation to accept all employers and employees. The problem is that it just provides the pension vehicle; it does not help manage the administrative side of automatic enrolment.
There is also a "capacity crunch" coming, i.e. 30,000 employers will need to comply with the new rules during 2014 and there is a concern that pension providers will not have the resources to deal with the demand.
SMEs need to ensure they plan well in advance of their staging dates. We have designed a consultancy light solution that assists employers with their automatic enrolment requirements and provides a market leading pension arrangement: www.barnett-waddingham.co.uk/ae
And finally, automatic enrolment has solved one pension issue: it means people will start saving. However, it has not solved the pension crisis, which is that people need to save a lot more! Hopefully automatic enrolment is the catalyst for this. We will have to see.
