Automatic Enrolment: Is the glass half full or half empty?

Automatic Enrolment

Auto EnrolmentSince October 2012 larger companies have begun the process of automatically enrolling their staff into workplace pensions. Earlier this week, The Pensions Regulator released new figures which showed 3,670 companies have now automatically enrolled their staff, resulting in millions more people saving towards their retirement.

But depending on how you look at the figures the glass is distinctly half empty for some employees.

According to The Pensions Regulator, over two million workers have now begun to save into a pension as a result of Automatic Enrolment. Great news for these people, who will undoubtedly enjoy a better retirement because of their decision to remain, opted in.

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Commenting on the figures Pensions Minister Steve Webb said: “It is great news that automatic enrolment is beginning to make a positive difference to the retirement prospects of workers. The changes to workplace pensions being introduced now are set to help millions more people to achieve many happy new years in the future.”

Webb continued: “Over 3,500 employers so far are helping us to create a fairer society by ensuring that pensions are no longer the preserve of the few. And the message to employers is make sure you’re ready for the date your workforce joins the two million already in.”

Glass half empty?

But, spare a thought for three million employees, 3,032,000 to be exact, who have missed out on being automatically enrolled and therefore lost valuable employer contributions and tax-relief on their own payments.

Employees who are younger than 22, or who earn less than the minimum amount required to trigger enrolment, £9,440 in the current tax-year, will be classed as ‘Non-eligible Jobholders’, or ‘Entitled Workers’, to use Automatic Enrolment jargon for a moment.

‘Non-eligible Jobholders’ are those who earn between £5,668 and £9,440 in the current tax-year. Employees who fall into this category are not automatically enrolled, but can request to join the workplace pension and will be entitled to a contribution from their employer. It appears that millions of ‘Non-eligible Jobholders’ are not choosing to join and are consequently missing out on valuable contributions to their pensions.

This group is only Automatically Enrolled if they specifically ask to be. As the TUC (Trades Union Congress) pointed out this week, the situation will get worse for the lower paid in April next year, when the Personal Allowance rises to £10,000, dragging up the threshold for being automatically enrolled with it.

Whilst the lower paid will clearly benefit from lower tax bills when the Personal Allowance rises, many will lose out on pension contributions and pressure is now growing on the Government to ‘decouple’ the Personal Allowance from the Automatic Enrolment threshold.

The very low paid are called ‘Entitled’ workers. These are people earning less than £5,668 per year and contrary to what the name suggests, whilst they can join a pension scheme, are not entitled to an employer contribution.