Second year blues

With the notion that auto-enrolment “might never happen” gaining ground, the Coalition is facing a difficult second year

Is Adrian Beecroft’s call for the delay of auto-enrolment going to earn him a place in the pantheon of pensions villains alongside the likes of Robert Maxwell and Gordon Brown?

Only time will tell, but there is a chance that the man the Prime Minister asked to review government policies from a small business perspective has done serious damage to a carefully crafted cross-party consensus that had held for over six years. Or maybe history will pin the blame on whoever decided to implement his proposals. Was it David or George? We may never know.

How do you communicate the benefits of a 90p a week pension to someone in their late 50s working today?

Until this review came along, auto-enrolment was seen as just another thing employers had to take on board. Now the notion that ’it might never happen’ for small firms is widespread. What greater encouragement to do as little as possible do employers need?

The risks to the whole project are great. Those big employers enrolling from this October – yes, it is actually happening this year – need now only keep their contribution rates at 1 per cent employer, 1 per cent employee until after that date in the next parliament when the last chip shop employee and nanny is enrolled. That could mean five years of 2 per cent of band earnings for some. How do you communicate the benefits of a 90p a week pension to someone in their late 50s working today?

And how can the Chancellor justify a delay on hardship grounds when his own projections show the economy growing by 3 per cent in 2014?
Similarly, Nest faces challenges, with its contribution charge now likely to stay in place for even longer as it is forced to wait to get the contributions from schemes large and small that it had planned on.

It is not all bad news for pensions policymakers. Massive savings in public sector pension expenditure have been agreed, although these seem more short-term than long-term. But ministers also face the prospect of having to go back to public servants to request more from them if the flat-rate pension, that other part of the Turner settlement that is yet to be fully delivered into the world, is to see the light of day.

Rumour has it that the current hold-up is the problem of finding a way to break it to public sector workers that their NI contributions will have to go up, although so will those in private sector DB schemes.

Like the rock band’s apocryphal difficult second album, the Coalition is finding its second year not as straightforward as its first.

John Greenwood, editor