As of next year employers in the UK will not be allowed to give employees the option to choose between pay rises and pension plans. According to the new rules, businesses will be forced to enrol all staff in workplace pension schemes as of October 2012.
Whilst the chief executive of NEST, the National Employment Savings Trust, admitted that many employees would forego a pay rise to help absorb the cost, he also stated that there is never a good time to institute change. He especially mentioned that these hard economic times are making it even more difficult.
The new rules will make it mandatory for employers to automatically enrol employees 22 years of age or older in a workplace pension scheme. The purpose of this reform is to see to it that the current 9 million UK workers who are currently not paying into a pension scheme will literally be forced to do so. Large companies will be first amongst those affected with smaller firms being phased in over a four year period.
It has been suggested that these changes be delayed in order to reduce the impact on businesses, especially small firms in the UK. According to government officials, this suggestion is being seriously considered. Even so, Tim Jones (chief executive of NEST) states that the reform is already being phased in quite slowly as small businesses will not be affected until the year 2014.
There are alternatives to Nest might include government reduction in the amount employers contribute to national insurance. This would make automatic enrolment more affordable for firms. However, employees would have the option to drop out after having been enrolled and there is still some uncertainty as to how may would take this option.
The opt-out rate is projected to go as high as 30% which is why this new rule is questionable and under consideration for revision.
