The delay in auto-enrolment contribution increases will provide a nice windfall for the Treasury at the cost of savers’ pension pots

The Chancellor of the Exchequer, George Osborne, announced that auto-enrolment contribution increases will be delayed by six months in his combined Autumn Statement and Spending Review.

He said, “To help businesses with the administration of this important boost to our nations savings, we’ll align the next two phases of contribution rate increases with the tax years.”

George Osborne

Businesses may be relieved that future increases in auto-enrolment contributions will be tied into the tax year, but the government will make some hefty savings too.

The shift back by 6 months is expected to save the Government £390 million in 2017/18 and £450 million in 2018/19. But it could cost savers £770 each, according to figures from NOW: Pensions.

CEO Morten Nilsson said: “On face value, a delay of six months on each rate rise seems inconsequential. But, for an average earner, they could miss out on £770 of pension savings.

Malcolm McLean, senior consultant at Barnett Waddingham agrees that the delays will be negative for savers.

He said, “It is claimed that this has been done to simplify the administration of auto-enrolment for the smallest employers but it does of course effectively mean that individuals will not see the benefit of increased contributions into their pension schemes for another six months.

“If the system of tax relief is to remain unchanged, it is understood that it is likely to result in a saving of £390million in tax relief costs in 2017/18 and £450million in 2018/19 which the Chancellor will no doubt gratefully receive.

“The delay may however also indicate a continuing nervousness by the government as to the level of opt-outs from workers in small employer schemes.”

Many commentators believe the government should be pushing people to save more, rather than delaying contributions.

Nilsson said, “Moving the goalposts causes unwanted and unnecessary confusion for employers. It also gives entirely the wrong message to savers.

“Rather than slowing the process down, the government should be looking to increase contribution rates. The reality is auto enrolment minimum contributions won’t be enough for a comfortable retirement but savers are under the illusion that auto enrolment will safeguard their future finances.”

Alan Morahan, principal, Punter Southall DC consulting agrees this is bad news for savers.

He said: “While employers will welcome the delay in contribution increases, it rather flies in the face of what auto-enrolment is meant to be about. This huge project was established to address the fact that the majority of UK employees were not saving enough, or at all, to provide for anything close to an adequate income in retirement.

“Delaying the increase of contributions will impact future pot sizes, which cannot be viewed as a positive by those people that auto-enrolment was aimed at.”

David Robbins, a senior consultant at Towers Watson, suggested that increases have likely been delayed as a result of the ongoing battle between the DWP and the Treasury.

This is how we imagine a battle between the DWP and the Treasury looks

Source: Bigstockphoto.com

This is how we imagine a battle between the DWP and the Treasury looks

He explained: “The timetable for implementing the automatic enrolment reforms had already been delayed time and time again. It’s a fight that the Treasury keeps having with the DWP and that the Treasury keeps winning. This time, it may have been seen as an easy sweetener to ask for as part of the deal on in-work benefits.

“When employers automatically enrol staff, they have to tell them what contributions will be paid, including when contributions will increase in future. Employers who used the Pensions Regulator’s letter templates will have already told staff that contributions would rise in October 2017 and October 2018.

“Until the regulations are published, it may not be clear whether all employers can change this without consulting employees.”