The DWP has unveiled two studies looking at employers' experience of auto-enrolment. Kim Kaveh looks at the findings.
Auto-enrolment (AE) has come a long way since its introduction in 2012 and, over half a decade on, it has ensured an extra nine million workers are saving for retirement.
Furthermore, the flagship programme has brought over one million employers on board as the programme reached the end of its phased staging earlier this year.
The Department for Work and Pensions (DWP) published two surveys on 20 June, which generally showed positive employer attitudes towards AE. However, they also showed that opt-outs varied among different groups, and revealed disparities in the awareness of AE requirements.
Small and micro employers
The report - Automatic Enrolment: Quantitative research with small and micro employer's stated small and micro employers were "typically supportive" of AE, with a large majority (81%) agreeing workplace pensions were a ‘good thing' for their workers. Some 71% provided the same response with regards to AE policy.
The survey consisted of 1,740 small employers and 958 micro employers (2,698 in total) who had submitted their declaration of compliance to The Pensions Regulator (TPR).
Fieldwork took place between 17 July and 9 October 2017. The data reported was weighted by size and sector to be representative of this small- and micro-employer population. In this instance, micro employers were those with one to four workers and small employers five to 29 workers.
The survey covered employers who had automatically enrolled their staff into a qualifying workplace pension scheme between September 2016 and March 2017.
Just under three-quarters viewed workplace pension provision as a social norm, citing that it was "normal for their staff to have a workplace pension".
Meanwhile, 65% of employers said it was their responsibility to encourage their staff not to opt-out, but a lower proportion (54%) viewed it as their duty to ensure that their staff could manage financially in retirement.
The DWP found that 78% of respondents were aware of the increases in minimum contributions, and 66% believed it was a good thing for their workers.
At the time this survey was conducted, minimum employer contributions rested at 1%. In April this increased to a minimum of 2% and will further increase to 3% in 2019.
The study also showed fewer than half (44%) believed it would be easy to comply with this change, whereas 29% felt it would be difficult.
Just over a fifth of employers said they contributed above the minimum requirement of 1%, and 16% said they contributed more than 3%.
Of the employers offering more than the minimum requirement, just over a fifth said they did so because they had already been contributing more than this prior to AE. Over a quarter (28%) said they did this because they viewed higher contribution rates as a staff benefit or perk.
The same survey found 35% said the regulator was the most commonly cited source of information on compliance, followed by accountancy or finance firms at 33%, and pension providers, 15%.
However, accountants or finance firms were the most common source of guidance - with 49% of respondents using them when choosing a pension scheme. Meanwhile, nearly three in 10 (27%) employers approached TPR for guidance. The same amount of respondents approached pension providers.
Nearly a fifth (18%) of small and micro employers said they did not send any form of written communication (emails/letters) to staff to inform them of AE.
The most common forms of non-written communication were one-to-one meetings (64%) and face to-face staff meetings (42%).
Furthermore, over half (54%) said compliance for AE was easy, while 28% found it difficult. The vast majority (81%) of small and micro employers reported a financial cost to implementing AE, with the median cost to date reported at £400. Broken down - there was a median cost of £200 for micro-employers and £500 for small employers.
Under three-quarters (70%) found the ongoing administration of their workplace pension scheme, or schemes, easy to cope with. Some 64% said they faced ongoing costs for administering their workplace pension scheme, and 72% admitted to committing less than half a day a month to administration duties.
Under half (45%) of the respondents surveyed by the DWP said the most common way they absorbed any of the costs associated with AE and ongoing duties was by reducing profits. Just 6% had lowered wage increases, and the same percentage of people "increased prices to cope".
A large proportion (85%) of workers were reported to have stayed in their workplace pension following AE while 14% opted out within a month, and 2% ceased active membership after one month.
However, despite the good news, disparities in opt-outs were found between small and micro employers - and the opt-out rate for small employers was at 13%, and almost a quarter (23%) for micro-employers.
Those most likely to opt-out with micro organisations included workers between the ages of 50 and 59 (28%), part-time workers (27%), and those who had worked for their employer for over 10 years (27%).
And among the same micro-employers, the opt-out rates for those earning between £10,000 and £20,000 was 27%, and 32% for those earning above £40,000.
Commenting on the research, minister for pensions and financial inclusion Guy Opperman said: "AE is transforming the way people save for retirement in all kinds of businesses across the UK.
"And the continued low opt-out rate shows how popular AE into a workplace pension is with employees. It is great news."
The People's Pension head of policy Andy Tarrant agreed: "It's encouraging to see that the vast majority of employers appreciate the importance of workplace pensions and now see them as ‘the norm'."
"The finding that the majority of employers recognise their pivotal role, alongside pension providers and the government, in helping savers understand the benefits from staying in the scheme is significant for the long-term future of employee engagement.
"Increasing employer contributions above the minimum requirements, if companies can afford to do so, will not only help employees save for their retirement but could also greatly benefit businesses when it comes to recruiting and retaining staff."
However, Hargreaves Lansdown head of policy Tom McPhail said challenges still remain.
He said: "Firstly we have to put employees in control of their own retirement savings, rather than forcing them to switch to a new pension every time they change jobs - this aspect of the system is madness and runs against the grain of the way people manage their finances."
He added: "Secondly we have to promote better engagement on the part of employees, encouraging them to take an active interest in their savings; in particular we need to encourage them to think about how much they are saving and where their money is invested."
The DWPs second survey, Employers retirement pensions provisions, published last week, was conducted between July and October last year among some 2,859 of private sector employers. It was undertaken by Kantar Public and the National Institute of Economic and Social Research.
The aim of the study was to show how private sector provision is changing following AE - and some of its key findings were around opt outs.
Among firms with a scheme used for AE, 9% of employees who were automatically enrolled in the last financial year (2016/17) had decided to opt out - a figure which, while not directly comparable to earlier surveys, does not suggest any notable increase in average opt-out rates since 2015.
Employers estimated that 16% of employees who had been automatically enrolled in the last financial year had ceased active membership - but noted that 67% of employees who stopped saving did so because they had left their employer.
The majority (72%) of employers who had begun AE reported that they did not take any action to encourage their employees to stay in the pension scheme but larger employers were more likely to have taken some action to encourage employees to do so.
Where employers did undertake such activities, the most commonly reported activities were providing information about the scheme and its benefits, and communicating reasons why employees should stay in the scheme.
Royal London personal finance specialist Helen Morrissey added: "There is further cause for celebration in that opt out rates remain consistently low at around the 9% mark - far lower than the industry's initial predictions at the start of AE.
"However, while the report shows high levels of awareness among large, medium and small employers it also demonstrates there is still work to be done in terms of raising awareness among micro-employers.
"This could be because many of these micro-employers have little experience of offering pensions to their staff and it is clear such employers will need support."
Overall, across both surveys attitudes towards AE are generally positive, and improvements have been shown from 2013 for private sector schemes. However, more concerning is the disparities in opt-outs among different groups, and the amount of employers contributing above the minimum.
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