Independent Financial Advisers Glasgow News & Guides

The final building blocks for automatic enrolment have been put in place as the Government published its response to the consultation on the earnings threshold.

With just over six months to go before the largest employers begin enrolling eligible workers into pension savings, the response sets out that automatic enrolment rates for the next tax year will be aligned with tax and National Insurance thresholds. This will make it easier for firms who will not have to negotiate another layer of complexity.

Minister for Pensions Steve Webb said:

"The overwhelming response to our consultation was the call to align the automatic enrolment trigger with existing payroll thresholds. This will help firms make a success of these reforms, as they will be able to better understand who is eligible to be enrolled.

"These changes strike the right balance between getting as many people into workplace pension saving as possible and ensuring that we do not enrol some people who would not financially benefit from saving. People who are excluded from automatic enrolment will still be able to opt themselves in, benefiting from a contribution from their employer.

The new, single tier State Pension announced in the Budget will dramatically improve savings incentives for people on a low income."

The Government must review the rates each tax year.

More than half of corporate financial advisers think that up to 30% of UK workers could opt out of the government’s new auto-enrolment regulations due to be introduced from October 2012.

Independent research from Aviva shows that the majority (98%) of corporate advisers expect some degree of withdrawal by employees from workplace savings schemes they would automatically be enrolled into. Around 20% predict that half of all employees will opt-out, a further 59% forecast that there will be up to a 30% drop out rate, while only 2% expect there will be no drop out. Most worryingly though, half of all corporate advisers think that the largest proportion of opt outs will be in the 35 and under age group.

The research highlights the importance of engaging employees on the benefits of saving in the workplace early, particularly amongst younger workers, many of whom will be saving into a pension for the first time.

Of the top five reasons advisers gave as the main barriers to saving amongst the 35 and under age group, the largest proportion (80%) say they don’t think younger workers can afford to save, while:

• 72% say that they have other financial priorities
• 69% believe that they think they are too young to worry about their retirement
• 63% don’t think they trust pensions
• 47% say that they don’t think the younger employees understand the benefits of a workplace pension compared to other kinds of saving.

The widespread view amongst advisers is that younger workers live in the "here and now" and have other things to worry about at the moment, a view that is echoed by this age group themselves, whose main current financial goals are to buy a house (36%); pay off debts (34%) and pay off their mortgage (20%).