Encouraging staff to save for retirement and forcing employers to pay into pensions is a good thing – isn’t it?
You’ve seen the TV adverts with Karren Brady, Theo Paphitis and friends proclaiming they are ‘in’ (although I suspect their retirement funds were secured through their entrepreneurial exploits some time ago), but what does auto-enrolment mean for the average person?If we are to look at one recent introduction to UK law that will impact on all of us, auto-enrolment is it. It might not be the sexiest new law, but it will change the way a payslip looks to almost every UK employee for the foreseeable future.
In simple terms, auto-enrolment means that when we retire, we should receive a pension from our employer. All UK employers are legally obliged to give us access to a pension scheme and we will be put into it automatically unless we opt out. Your boss will need to pay in, and you will have to pay in part of your salary as well. This is the Government’s master plan to get us all saving for the future and to stop us reaching the autumn of our years with only the state pension, a bus pass and our winter fuel allowance to keep us company.
So, should you be in or out? Many will appreciate this development. Having your employer help you to save for the future seems a positive idea. However, there are a lot of practical and legal implications to think about.
First, most people do not leave university, sign up with an employer and work for it until retirement. Most of us take long and winding career paths, working many places throughout our lives. This could mean we end up with pensions dotted around everywhere and an administrative nightmare in consolidating and tracking them.
Another practical consideration is whether we should be forced to save for retirement. Once money goes into a pension, it does not come out until we retire. We may want that money now or prefer to save for other things, such as a house or travel.
Turning the microscope around, if you are a young person starting your own business, auto-enrolment may be an unwanted cost but encouraging employees to opt out is not allowed.
The principles of auto-enrolment may sound simple enough, but it presents a big legal and administrative challenge. The Government itself is gradually understanding how auto-enrolment can accommodate the diverse world it is seeking to fit. Numerous changes to the legislation have already been proposed to ‘iron out the creases’ that have appeared so far.
If auto-enrolment is to become a permanent feature of working life, it is best to look at it as a work in progress. Lawyers and other professionals are working hard to find ways to make auto-enrolment run smoothly for both employee and employer. With any luck, we’ll retire better off because of it.
Rick Jakubowski is a solicitor at Pitmans