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Comprehensive Spending Review: Auto enrolment and NEST given the official go-ahead

David Woods , 21 Oct 2010

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Auto enrolment and NEST have been given the go-ahead in the Comprehensive Spending Review but this will bring yet more opportunities and challenges for employers and financial services services before regime starts in 2012.

Marc Hommel, pensions partner at PricewaterhouseCoopers, said:" It appears employers will finally have certainty that both auto-enrolment and the National Employment Savings Trust will go ahead, although we await to see on what terms. Most larger employers are telling us that they do not expect to use NEST, but it could be a very attractive provider for smaller employers."

"2012 is the year in which retirements of post-war baby boomers is expected to peak. It looks like it will also be the year in which the UK first sees compulsory auto-enrolment of employees into retirement savings arrangements.

"Larger employers will have less than two years to work with their administrators, payroll, trustees and providers to ensure a smooth transition to an auto-enrolment world.

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"Many in the financial services industry are at long last recognising the opportunities and challenges presented by auto-enrolment, and the potential competition from NEST, to review their future strategy for supporting the UK market for retirement savings through employers.

"We await details on whether the Government has found ways to lessen administrative costs for employers, for example in the areas of short-term, low-paid and older workers, and for satisfying quality tests for existing pension schemes.

"Meanwhile, all near-term changes which employers make to their pensions and wider reward arrangements (for example, in relation to the new pensions tax rules or the closure of final salary schemes) must have an eye to 2012 to ensure they are future-proofed."

And Paul Macro, a senior consultant at Towers Watson, added: "If the Government wants to require all employers to enrol staff into pension schemes, there has to be a pension scheme to enrol them into. There has never been a clear commitment from the private sector to provide pension schemes for the smallest employers, who cannot profitably be served under current business models. If the Government had pulled the plug on NEST, it may have had to exempt small employers from the new laws, leaving a significant part of the workforce without a pension.

"The next question is how quickly the Government wants its loans to NEST to be repaid. The current plan to charge members £2 for every £100 paid in so the loan can be repaid quickly may deter people from saving in NEST altogether."

On Monday, the Pensions Minister Steve Webb told the House of Commons: "The Government remains committed to the introduction of automatic enrolment. We have now received the conclusions of the review that we set up, and we will make an announcement to the House shortly. I am pleased to confirm that we will go ahead with auto-enrolment according to the previously intended timetable." Similarly, today's Comprehensive Spending Review confirms that automatic enrolment will begin from 2012.

Macro said: "The official 2012 start date is something of a fiction because it only applies to a handful of employers. The real significance of this announcement is that employees due to be enrolled between 2013 and 2016 won't see this pushed back any further.  There will still be a long period where different employers are subject to different rules and where minimum pension contributions are very small. However, despite criticising earlier delays, it was always unlikely that the new Government would put its foot on the accelerator. It is aiming to balance the budget by 2015 and if people started saving in pensions sooner, they would not pay as much tax that year."

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