Do small companies understand the new pension rules?by Jay Elwes / September 17, 2014 / Leave a comment
Rather than pushing citizens into making decisions, governments have, in recent years, taken to “nudging” them towards better choices. This notion of nudging led to the establishment of a “nudge” unit within Downing Street, intent on tilting the floor beneath the population’s feet to gently encourage their movement in a direction of the government’s choosing.
One of the most significant manifestations of the nudge technique has been in pensions. Company pension schemes have always had the essential characteristic of being “opt-in,” that is, you are only in if you want to be. But the nudge principle, when applied to pensions, suggests that it would be much more effective to make pensions schemes “opt-out,” so that employees are automatically enrolled in the company scheme unless they say otherwise. The intention is to create conditions such that more people in Britain save for their retirement. This is the thinking behind Britain’s new auto-enrolment company pension scheme. But has it worked?
“We are very encouraged about take-up,” says Charles Counsell, the Executive Director for Automatic Enrolment at The Pensions Regulator. “We’ve got through all of the large employers,” he says, adding that over 99 per cent of all companies have signed up to the scheme without the need for regulatory intervention. “That means over four million people are now saving into pensions who weren’t previously.” According to the Department for Work and Pensions, the opt-out rate is a mere 9 per cent.
The introduction of auto-enrolment pension schemes began in 2012 and has been staggered. Larger companies were required to set up schemes first. But in the coming two years, small and micro employers, that is companies employing fewer than 50 employees, will begin enrolment. At this point, the number of companies being brought into the scheme will be very substantial. The Pensions Regulator estimates that between January and April 2017, 215,000 small companies will join the scheme and that by the time the enrolment process comes to an end in 2018, a total of 1.3m companies will have enrolled. Is the pensions market up to the task of providing this amount of new pensions products?
“I think so,” says Counsell, who says that despite the high volume to come, the market will be able to provide new suitable products to meet expanded demand.…