BeeHive > BeeLines > 2009 > September > We won’t miss what we’ve got till it’s gone…
We won’t miss what we’ve got till it’s gone…
The main feature of the auto-enrolment regulations that are set to come into force in 2012 is that it will not be compulsory for employees to contribute to a workplace pension after 2012, or to accept their employers’ pension contributions or the taxman’s.
It will be necessary for employers to auto-enrol all eligible employees, including those who don’t want to be enrolled into pension saving, but those auto-enrolled employees will retain the right to opt-out of the qualifying workplace pension schemes they are put into. It is hoped, of course, that inertia will play its part and that many of those auto-enrolled will stay in schemes, but they won’t have to.
The important point there is that workplace pension saving after 2012 will be voluntary as far as employees are concerned. That is the complete opposite of where we are today and where we have been since 1961 (with the exception of the three years between 1975 and 1978) where workplace pension schemes for all employees earning above a minimum level have been compulsory.
The Graduated Pension Scheme, the State earnings-related Pensions Scheme (Serps) and their modern successor, the State Second Pension (S2P) were all workplace pension schemes run through the machinery and efficiencies of the state utilising the National Insurance system. These workplace pension schemes were not funded in the way that private sector pension schemes are, rather they were unfunded in the way that public sector pension schemes are. There is nothing wrong with that, indeed we are constantly hearing from government people that all the talk about unfunded workplace pension schemes in the public sector is a bit of a red herring.
The thing is the state second pension system we have had in place now for over half a century in this country has provided millions of employees with earnings-related workplace pension benefits in return for earnings-related National Insurance contributions levied on both the employees and their employers. It has always been possible for some employees to be contracted out of the state second pension schemes, but only if they were members of employer-sponsored pension schemes or, lately, personal pension schemes. In this way we have ensured for over half a century that practically every employee in the UK has been compulsorily building up a workplace pension.
From 2012 that compulsion is being replaced by a voluntary system of workplace pension saving, albeit backed by the power of inertia.
It seems to me that if we are moving from a compulsory system to a voluntary one the outcome is likely to be that fewer employees will be accruing workplace pension benefits after these reforms come in than now.
Is it just me, or is that crazy?
1 September 2009
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