Employers feel the squeeze of AE
Employers are feeling the cost of providing auto-enrolment far more than scheme members, research from the Chartered Institute of Personnel and Development has shown.
The survey, ‘Employee Outlook’, said most auto-enrolled employees “have not noticed the drop in income resulting from automatic enrolment, or any drop has been compensated by a pay rise.
It’s not necessarily about working harder, it’s also about working smarter
Conversely, 70 per cent of employers said the process had created a noticeable increase in cost.
The most common reaction among employers was a relatively hands-off approach, with 21 per cent happy to simply absorb the cost and accept lower profits, and 15 per cent paying the statutory minimum contributions.
This was followed by 12 per cent seeking to improve productivity, and 10 per cent capping wage growth.
Charles Cotton, performance and reward adviser at the CIPD, said that while only one in 10 employers had sought to improve performance, they were still managing to generate extra cash from productivity improvements.
Of the employers that increased salaries by more than 2 per cent last year, 28 per cent said productivity improvements paid for the increase.
“It’s not necessarily about working harder, it’s also about working smarter,” he said.
No noticeable impact
Meanwhile, just one in four employees surveyed said they had noticed the drop in income from auto-enrolment, the report said.
Most employees – 58 per cent of respondents – reported that being enrolled into a pension had no noticeable impact on their spending and saving. A further 15 per cent did not need to make any changes because their pay had increased since being enrolled.
Cotton said: “Among people who noticed the deduction, some decreased their spending. Some cut back on saving [outside of the scheme].”
However, where schemes offered matching contributions to top up saving, 66 per cent of employees said it encouraged them to pay more.
Cotton said: “We found one way employers could get people to pay more was to match their contribution. Where these schemes were in place they were very effective in increasing contributions.”
Pressure on employers
Ian McQuade, client director at governance adviser Muse Advisory, said auto-enrolment was putting extra pressure on employers with high staff turnover.
He said: “Historically the transient workforce would not enrol into a pension scheme, but now they have to.”
McQuade added this has driven such employers to favour mastertrusts over running their own schemes, to minimise the cost of deferred memberships from people leaving the workforce.
Andy Cheseldine, partner at consultancy LCP, said: “The thresholds are only going to increase… Employers are going to find contributions are going to get quite a bit more expensive.”