Government could delay auto-enrolment pension reforms

The government is set to delay or possibly even shelve the auto-enrolment pension scheme because of the state of the economy.

Auto-enrolment, whereby all, even the smallest employers, have to administer a pension scheme in which all employees are automatically enrolled onto it is likely to be delayed from its intended start date of October 2012.

Under the new scheme every employer would be expected to run a pension scheme and pay contributions on behalf of their employees. However, there is a growing view that introducing the scheme when the economy is in poor shape would be bad timing because of the extra costs to employers and employees.

A government report recommends delaying the introduction of the scheme and even suggests smaller firms could be exempt altogether. The report expresses concern at the extra levels of regulation and cost of administering the scheme to small businesses at a time when many are struggling.

Ministers are also concerned that taking funds off of up to seven million lower paid workers at a time of high inflation and low wage increases could amount to political suicide. There are also concerns that the scheme will impact on consumer spending at a time when the economy is so weak.

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Some politicians have criticised the timing of the introduction. It has been labelled as a form of “quantitative tightening” as it will reduce the amount of money in the economy just at a time when the Bank of England and Treasury economic policymakers are trying to increase the money in the economy through their policies of quantitative easing and credit easing.

It is expected that the Department of Work and Pensions would oppose any delay in the commencement of the scheme as it has spent years preparing for it and says that it has given both employers and workers plenty of time to prepare for it. It will also argue that as a nation we need to save more for retirement and that in October 2012, the scheme is being introduced, but the costs will be lower in the first few years.

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