Not a Car Registry then...

Not exactly something which does exactly what it says on the tin!

Auto enrolment is the government’s plan to solve the problem of lack of saving to fund people’s retirement. The fact that the word pension is not used in the title may well be deliberate due to the various pension scandals in the past.

In many ways initially the main affect will be on the employers who have to ensure that they set up the necessary pension schemes. Major employers will need to have already taken action on this, but those employing between 499 and 62 employees need to have things in place by next year or face heavy fines.

For employees the change is a case of having to opt out rather than opt in, rather like the discussions recently about changing the organ donor system to assumed consent.

At the outset all eligible jobholders will be placed within the pension scheme and anyone who does not wish to be a member has to opt out. Even then they will be placed back in the scheme every three years and if they still do not wish to be a member they will have to opt out again.

In essence the assumption is that apathy will result in more people being in pension schemes as they will not bother to opt out, whereas in the past they could not be bothered to opt in.

The amount the employer has to contribute increases each year starting at 1% to 3-4% (depending on certification), which of course needs to be allowed for when doing cashflow forecasting for the next few years.

One issue is of course whether the minimum contribution limits for employers and employees will generate a sufficiently large retirement pot to give people the required income in retirement.

Auto enrolment is part of the Government’s attempt to encourage people to take responsibility for their own retirement income and try to wean people off reliance on state help in its various formats. With people living longer, this pressure has resulted in the closure of many final salary pension schemes as the cost is just too great.

As a result only public sector workers are consistently receiving the benefit of this type of scheme. However, in addition to these costs the Government has the State Pension plus Pension Credit to pay for an ageing population. Hence the various changes such as progressively increasing the age when State Pension will become payable and auto enrolment.

One thing that will not change is that there is always going to be a cost for providing for your or your employees' retirement. Therefore retirement needs careful planning and if you need advice it can be obtained by contacting Shipman Financial Planning on the contact details below.

For further information contact Shipman Financial Planning Ltd, 1 Barnfield Crescent, Exeter, EX1 1QY, telephone 01392 278491 or email info@shipmanfp.co.uk.

This article is for general information only and reflects the views of the author only. You should seek professional advice in respect of your own circumstances. Authorised and regulated by the Financial Conduct Authority. Shipman Financial Planning is a highly respected professional adviser offering personal service and innovative advice.