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IPE special report May 2018

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'Crunch time' for auto-enrolment to come in 2016-17, expert warns

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The crunch time for auto-enrolment in the UK will come in 2016-17 when hundreds and thousands of smaller employers must join the new pensions system, former government actuary Chris Daykin has warned.

At a recent Politeia meeting in London, he said opt-out rates were currently less than 10% among the larger employers’ schemes, but he said a threat to the success of auto-enrolment could come if opt-outs increased to 20-25% among smaller employers.

“There would be high risks to auto-enrolment if opt-out rates hit 20 to 25%,” he said.

Research by Now Pensions, of which Daykin is a director, has shown low awareness of auto-enrolment among small employers.

The costs of enrolling these employers could be considerable, Daykin said.

This business might not prove cost effective to established providers such as Now Pensions, and many of these smaller arrangements could go NEST.

He said pay-roll service providers used by many smaller employers might be a possible way to deliver auto-enrolment to them.

He described the introduction of the new decumulation arrangements in the UK Budget by the chancellor as “blowing-up” the existing structure, which he hinted it might have been better to reform.

He said there was no model worldwide of a successful decumulation phase in place.

Referring to the proposals to introduce collective defined contribution arrangements to the UK, modelled on the Dutch or Danish pension systems, Daykin said these might be a “missed opportunity”, in view of auto-enrolment. 

He estimated that the new flat rate state pension coming in 2016 would work out at £160 (€200) per week.

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