As the government’s flagship pensions auto-enrolment scheme rolls out across the UK, pensions minister Steve Webb has hinted at another step for employers once they have enrolled eligible workers: auto-escalation. Auto-escalation is where pension contributions automatically increase in line with pay rises.
Speaking to a group of payroll and HR professionals at a recent conference hosted by HR systems provider Ceridian, Mr Webb said: “Now we’ve got people in, how do we get them up? Our view is that when people get a pay rise they should pay themselves first. This involves putting aside an appropriate sum of money for their future.”
The auto-escalation process can be delivered without new legislation, Mr Webb added, stating his opposition to mandatory enrolment schemes such as those operated in Australia, where employees are legally barred from opting out. Engagement with the scheme is enhanced, he said, when people feel they have a choice and can exercise some control.
So far the UK has seen high levels of retention in auto-enrolment, with just 10% of people subsequently opting out after being auto-enrolled.
Will the new auto-enrolment process prove a bridge too far for the tens of thousands of SMEs, amongst them numerous Umbrella Companies, facing their staging dates in 2014? With fewer resources to finance expert help than their larger counterparts, which staged last year, the process is likely to be somewhat more arduous for many SMEs.
Mr Webb acknowledged that auto-enrolment was more challenging for smaller firms but assured them that they would receive more jargon-free off-the-shelf solutions from pension providers to help them to pinpoint the best schemes for their employees.