However, a quarter of employers believe that more than half of their employees will opt out of auto-enrolment, casting further doubt over the effectiveness of the scheme.
According to research from the Institute of Directors, the main reason behind this opinion is employees’ inability to contribute up to four per cent into a pension scheme.
And despite the potential financial strain on lower paid employees of small businesses, many will not opt out through apathy or ignorance, despite the scheme not suiting their needs in many cases.
It has been calculated that contribution from employers to these ineffective pension plans could amount to over £2bn.
Various experts have their doubts about the efficacy of the new plan. For example, David Marlow, Development Manager at Creative Benefits, says:
"We have serious concerns about the cost of auto enrolment on British SMEs. There is no doubt that pension saving in the UK needs to increase, however lumping everyone into the same scheme regardless of a person’s age, existing debts and life plans is extremely dangerous. We believe that it wouldn’t be appropriate for around 20 per cent of today’s employees.”
While Malcolm McLean, Consultant at Barnett Waddingham, while understanding that the funding gap needs to be bridged, believes that the Government may need to rethink its current plan.
“Other possibilities might include much more extensive deregulation, extra tax incentives for employers, a merger of tax and National Insurance, and the introduction of a simplified citizen’s pension arrangement,” he said.
Given the discussions around the scheme, the DWP has announced that there will be a 12 week consultation period on auto-enrolment regulation ending on October 11th 2011.
"For more information, please contact Glazers, Chartered Accountants London or visit www.glazers.co.uk
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