Dated: 21 November 2011
The Institute of Directors has today (Monday) called for the Government to postpone the phased introduction of auto-enrolment pensions for two years (until 2014). Under present plans employers will begin to automatically enrol staff onto pension schemes from October 2012.
The IoD is opposed to the introduction of auto-enrolment on the proposed timetable for three key reasons:
- This regulation comes at a time when real incomes are being eroded by inflation. The last thing we need now is to further reduce spending power by creating employee pension contributions for all workers earning more than the income tax personal allowance.
- Many employers are currently struggling to find the resources to offer their staff salary increases. When auto-enrolment commences, firms may find the additional employer contributions swallowing up any potential pay rises. When IoD members were asked earlier in the summer how they would make up the contributions, one third said they would be forced to freeze salaries.
- Employees have the opportunity to ‘opt-out’ of auto-enrolment. With household budgets already stretched, many employees will prioritise income now over future retirement savings. The IoD predicts high levels of employee opt-out as a result. This means the policy would fail in the Government’s objective to increase pension saving, while loading employers with unnecessary administration.
Commenting on the Government’s proposed timetable, Simon Walker, Director General of the IoD, said:
“This is the wrong time to be implementing pension auto-enrolment. The Bank of England’s downward revision last week of their growth forecasts for this year and next shows that companies and households are hard-pressed. Real incomes are being squeezed and employers are struggling to offer staff pay rises.
“It is not too late for a change course – if the Government defers auto-enrolment at next week’s Autumn Statement, it will have done so before most businesses have even considered the impact of the new rules. A few months ago when we asked, one in five of our members did not even know the legislation was coming into effect from next year.
“The IoD proposes that the Government delay the introduction of auto-enrolment by two years. This would give businesses time to strengthen their balance sheets while not undermining consumer spending when it’s at its weakest.”
“Those businesses that have begun preparations and wish to press on should be able to do so voluntarily. However, forcing businesses into auto-enrolment from 2012 would be counterproductive.”