B&CE’s key assertion is that the scheme needs significant simplification to ensure success. Of equal importance in B&CE’s eyes is the need to ensure that there are no further delays in the kick-off to automatic enrolment; it must start in October 2012 for all relevant employers.
B&CE fully understands the challenges associated with operating multi-employer stakeholder pensions. As the provider of the UK’s largest (500,000 members) stakeholder pension scheme to the construction industry B&CE has extensive experience in serving a high turnover industry employing low to moderate earners; highly relevant to the automatic enrolment challenge.
Stakeholder pensions are already providing a low cost, flexible and secure option for employers who do not already provide another pension arrangement for its employees. However B&CE recognises there are issues to be addressed in this arena, in particular the issue of auto enrolment, small pension pots and simplified administration.
Automatic enrolment will provide the missing ingredient that many stakeholder pension schemes have needed and through its introduction the Government will be providing the missing catalyst for their widespread success. To implement auto enrolment successfully the scheme needs to be simple to operate and costs to be clear to both employers and employees. In B&CE’s view it is also essential that there are no further delays in introducing auto enrolment from the planned October 2012 date.
B&CE believes the existing rules proposed for the automatic enrolment regime are far too complex, and in themselves threaten the scheme’s success. The additional administrative burden for employers – on top of the compulsory contributions they will have to pay – is the last thing UK businesses need as the country seeks to recover from the recession and its vast deficit. And employees who have never saved towards their retirement before are much more likely to opt out of the scheme if it stays as complex as is currently proposed.
In broad terms, the simplification that B&CE recommends would mean that anyone up to state pension age could become a member of a qualifying scheme, but automatic enrolment would only apply to employers with five or more employees and those earning more than a set level (between £10,000 - £15,000).
However, consideration also needs to be given to address the national issue of all individuals needing to save for their retirement, regardless of the size of employer for whom they work. Full access to the same benefits of employees working in qualifying companies could be achieved simply by giving staff in smaller employers the right to opt-in to a qualifying scheme under the same matching rules or consider whether if this should be less than 5 employees.
For this to happen simplification is essential, and contributions would start when the employee’s basic salary exceeded the threshold (say £10,000 - £15,000) but would then be made on their entire basic salary from £1 and above. As the basic salary does not change frequently, this would overcome the problems caused by fluctuating earnings (e.g. small and irregular contributions).
Something also needs to be done about resolving the problems with small pension pots which accumulate as employees change their employer. Our recommendation would be to simplify the pension transfer rules to allow an automatic pension transfer where the amount is less than £2,000 and it meets certain criteria.
John Jory, Director of B&CE Insurance Ltd comments:
“This review has an historic opportunity to turn a well-intentioned but far too complex reform into something that is instead very sensible and highly likely to succeed. By making the common sense and practical simplifications we propose, the scheme will become far more manageable for employers and appealing to staff – essential ingredients if this reform is to deliver crucial changes in Britain’s long term savings habits.”