First, we were “all in” with various luminaries including James Dyson, Karen Brady and Theo Paphitis, and what I assume were various members of their respective workforces.

Then came Workie, the 8 foot plus green and blue monster, who was the apparent embodiment of Automatic Enrolment legislation, and lurked around small employers to remind them of their duties, even though said employers were apparently oblivious to his physical presence. Aside from the unusual manifestation of how legislation may look if it had a body, Workie was famed/notorious as he, in his various campaigns, reputedly cost the DWP – and, hence, us as taxpayers – £8,000,000.

And now, with the imminent increases to minimum contributions that may well define whether all these pension reforms are a success or not (see here for my previous rant on this subject https://richmondhousewm.co.uk/the-acid-test-of-automatic-enrolment/ ) we have … well, nothing!

With just over a week to go (at the time of writing) until the new rates become law, I am amazed that the Government, either directly through the DWP, or indirectly, through The Pensions Regulator, are not making strenuous efforts to prepare workers for the increased contributions and the reduction in take home pay.

Assuming employers choose not to subsidise the contribution rate increases by paying more than they are required to, employees are going to see a trebling of contributions and a further 66% rise in April 2019. If this was rail fares or the like, various consumer groups would be filling the airwaves with their apoplexy.

Granted, employers have been informed of the changes. But there is no compulsion for employers to get this message across to their workers and many, preoccupied with the likes of GDPR etc., have simply not communicated the facts.

The upshot will be that, when they receive their April payslip, many employees are going to be in for a shock. And simply saying that it is a good thing because it is increasing the amount of savings being made, is not going to hold sway, particularly for those on tight budgets.

Faced with the increases, it is inevitable many will take the step of stopping their contributions and, hence, missing out on the employer contributions too. Some of these will be genuine cases of people on very tight budgets who genuinely cannot afford the required extra. A larger number who “live for today and to hell with tomorrow” will also stop paying. And a further number will simply take umbrage at not having been told beforehand and stop paying, some temporarily, some permanently.

These decisions will almost certainly be based on what is seen as the cost and will, undoubtedly, ignore the possible benefits. One very obvious reason for this is that very little has been done to highlight the differences for someone who stays in Workplace Pensions for the long term and someone who ducks out at the first increase. Until now, that is. The disappointing thing is that it is not Government who are doing something about it.

The BBC have commissioned research and worked out various scenarios – see here http://www.bbc.co.uk/news/business-43429033 – showing that someone who stays in their employer’s pension can expect to receive an income around 18 times higher than someone who stops contributing in April. Of course, the final figures are based on many assumptions, but the principle holds that staying in will not only produce far better returns (this isn’t rocket science) whereas stopping contributing will lead to a retirement of near poverty and potential reliance on State handouts – which is what Automatic Enrolment was designed to ensure people avoid.

As a business owner, HR Director, FD or similar, you may wish to, even at this late date, get a message out. Not least because it will undoubtedly pre-empt some upcoming difficult conversations. As advisers to hundreds of clients with full blown Automatic Enrolment schemes, we have designed communications for employees explaining the why and when and how. Our clients have these already.

If you are not currently a client, get in touch and we will be happy to help you over what could be a tricky period (but please remember, we’re not a charity so will need to charge you). Because you just can’t rely on the Government…

Peter Murphy DipPFS

 

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