The Public Accounts Committee (PAC) has issued a warning that the auto enrolment process for workplace pensions has reached a critical stage, and says it plans to monitor progress closely as the Department for Work and Pensions (DWP) starts to roll out the scheme to 1.8m smaller employers
In its report on its inquiry into the introduction of the automatic enrolment programme PAC says DWP has successfully implemented auto-enrolment for larger employers, but maintains ‘the real test is still to come’ as smaller employers enrol staff between 2016 and 2018.
The report says: ‘Smaller employers have fewer resources to administer automatic enrolment and simplifying the process will be critical to the success of the programme.’
PAC says it is concerned the Pensions Regulator cannot yet access real-time information that would aid this roll-out, and highlighted the ‘potential burden’ on smaller employers.
It also finds DWP has still to resolve important questions affecting the value of workplace pensions and says ‘there is a risk that people will be disappointed with their pension if they continue to pay minimum contribution rates’.
In addition, PAC is concerned the National Employment Savings Trust (NEST) does not know when it will repay the loan used for its establishment, which amounted to £387m at 31 March 2015, or how much this will eventually cost the taxpayer.
Meg Hillier, PAC chair, said: ‘Auto-enrolment is entering a critical stage which will affect 1.8m additional employers and their staff. It is vital people can understand, implement and have faith in the system.
‘The DWP must watch and learn from the experience of small employers and ensure easy-to-use tools are in place to support them. At the same time, swift action is required to ensure the Pensions Regulator can access accurate information.
‘There must be greater clarity on outcomes for employees—for example, those with multiple small pension pots—and also over the substantial loan, funded by the taxpayer, which was used to set up NEST.’
The report calls on DWP to write to the committee in 12 months, updating it on progress both in implementing auto enrolment and against the committee’s recommendations. PAC signalled its intention to revisit the topic , which it described as ‘of vital importance to both employees themselves and to future governments as they plan for pensions’.
Additionally Hillier said it was ‘crucial’ that the department’s own review of the programme ‘fully considers the impact of wider reforms that could affect people’s income in retirement’.
PAC said DWP will need to monitor the experiences of small businesses—including 900,000 employers with only 1 or 2 employees—and minimise administrative burdens, while also ensuring that increased enrolment translates into adequate incomes in retirement.
The report found that so far during auto enrolment roll-out, employer compliance has been high and the proportion of people choosing to opt out from automatic enrolment has been lower than expected at between 8% and 14%.
PAC’s report is here
DWP has opened a technical consultation on plans to make auto enrolment regulations simpler to apply for small and micro businesses, with a deadline of 16 February 2016. Details are here