Pensions auto enrolment legislation is designed to encourage a retirement saving culture in the UK. People are living for longer and the cost of supporting our ever ageing population is increasing. This is putting increased strain on the taxpayer and the government is trying to find a way to encourage individuals to save towards their own retirement.
But will it work? For employees who want to actively save for their retirement, this legislation will make achieving that easier, as well as obliging their employers to contribute. However, most small employers are telling us they think the majority of their staff will choose to opt out – if you are a low earner, losing 5% of your salary in pension contributions is quite significant and many people will feel they simply can’t afford it.
If this is what happens, then pensions auto enrolment legislation may simply result in an administrative burden for small businesses having to manage the opt out and re-enrolment processes. Or will the simple inertia of automatically being enrolled and laziness of employees to actively opt out, mean a certain proportion of employees will end up with a workplace pension they wouldn’t otherwise have had?