Thursday 2 August 2012

Ticking Time bomb

The government's roll out of Auto enrolment is well underway yet most people I speak to have no idea what it is. Many have heard the radio adverts stating it is on its way but don't actually understand what it is going to be.

In simple terms, the government has addressed the fact that we are all living longer and with an older dynamic to our population there is a giant financial liability for the tax payer to support people in their old age. In response to this the government has looked around the world and has come up with a hybrid pension scheme made up predominantly from the Australian/New Zeland system.

Each employer will have to provide a pension for their employees and contribute towards these pensions. It will now be much more difficult for employee to opt out of a pension scheme as the automatic position will be that the employee is opted into the pension. Why would any employee want to opt out of extra money from their employer anyway?

The rules of administration in regards to Auto-enrolment will be very strict with fines for employers who do not administer their pensions properly or even bigger fines for those employers who try to encourage their employers to opt out.

Employers therefore will have a potential extra financial liability towards their employees pensions not to mention the administration. As one of the most radical shake ups in the pension system it is therefore very worrying the lack of understanding and knowledge many people have on this subject.

Is Auto-enrolment a good thing?

Encouraging people to save for their retirement can only be a good thing and whilst this is a burden for many small business to big business alike, the levels of contribution required should not cause a business to break. I suspect many business owners/directors may not offer pay rises in the lead up to the staging date (when you have to have it place by) to offset the pension contribution liability they will have.

With the government showing signs of increasing state pension retirement dates all round to meet our increasing life expectancy rates I think employers and employee should embrace this scheme. You don't want to be working until you are 80!! 

However, the sceptical side of me thinks that the government may tinker with this so much that it will again become a red herring. and N.E.S.T (national employment savings trust) which is the default fund your pension will go into unless you have provided your own compliant equivalent worries me.  I am yet to see many efficient projects instructed by civil servant that are low cost and deliver good return! The Olympics are testament to this!

Matthew Duncan
Independent Financial Adviser
Invest Southwest

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