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Pensions auto-enrolment 'needs simplification'

20 Nov 2014

The new pensions auto-enrolment regime is proving successful, but the system requires simplification and many payroll providers still lack a proper understanding of the system, business groups have warned the Work and Pensions Select Committee.

Under auto-enrolment, all eligible employees must be automatically enrolled into an appropriate workplace pension scheme unless they choose to opt out.

The scheme began in 2012, starting with the largest businesses, and is being phased in over a number of years. More than 4.7m workers have so far been enrolled into a workplace pension under the new scheme.

However, concerns have been raised over the complicated nature of auto-enrolment, as well as the increased cost implications for smaller businesses.

A recent survey from the Chartered Institute of Personnel and Development (CIPD) has revealed that more than two thirds of employers have successfully enrolled employees into a pension scheme, contributing on average 5.6% of an employee’s salary - significantly more than the minimum 1% contribution currently required by law.

Meanwhile, only 7.4% of eligible workers have opted out of the scheme, a lower figure than was originally predicted by the Department for Work and Pensions.

The CIPD has warned that almost half of small and medium-sized employers anticipate that they will need to limit future pay growth in order to pay for auto-enrolment, while just under a fifth believe they will need to reduce hiring levels or cut existing jobs.

Charles Cotton of the CIPD advised, ‘To mitigate any possible negative consequences, firms need to plan in advance, look at the cost implications, examine the potential responses and evaluate which ones meet the needs of the business, its employees and workers’.