Is the DWP Letting SMEs Down Over Auto-Enrolment for Pensions?

The Public Accounts Committee has been reviewing the Department of Work and Pensions plans for the roll out of pension auto-enrolment.  Whilst they commended the DWP on its work with larger employers, it has raised concerns over the support being offered to 1.8 million smaller employers, who will be enrolling staff between 2016 and 2018.

Automatic enrolment aims to reverse the long-term decline in the number of people saving into a workplace pension. Employers will have to enrol workers into a workplace pension scheme if they are working in the UK, earn more than £10,000 per year, are over 22 years old and are under State Pension Age. 

As of August 2015 5.4 million people had already been enrolled in a pension and although these pensions should increase people’s financial health in retirement, the committee has highlighted concern over the value of these pensions if people only pay in the minimum contribution rates.

They also raised concern over the complexity of the system SMEs are being asked to implement.  Recognising that SMEs have fewer resources to administer automatic enrolment than big businesses and that simplifying the process will be critical to the success of the programme. 

Their report calls on the Department to write to the Committee in 12 months, updating it on progress both in implementing auto-enrolment and against the Committee’s recommendations.

Meg Hillier MP, Chair of the PAC, said "Auto-enrolment is entering a critical stage which will affect 1.8 million additional employers and their staff. It is vital people can understand, implement and have faith in the system.

The Department for Work & Pensions 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.

Auto-enrolment is a huge undertaking with implications for millions of taxpayers but our Committee does not believe its success or failure can be properly evaluated in isolation.

The Department will in time conduct its own review of the programme and we would stress it is crucial this fully considers the impact of wider reforms that could affect people’s income in retirement.

We will be following the Department’s progress closely over the next 12 months and will expect it to respond effectively to the recommendations detailed in our Report as the roll-out proceeds."