Broadly speaking, there have traditionally been three pillars of
the pensions system - state, occupational and private
It is widely acknowledged that of those pillars, the state
cannot continue to support the increasing burden of significantly
increasing retirement funding needs, which are the unfortunate
corollary of people living longer. The IMF's conclusion that
Britain faced a potential £750 billion "pensions time
bomb" was widely reported last year.
In the UK, in an attempt to counter the rising costs of an older
population and ensure individuals are saving for the future,
legislation has introduced "Automatic Enrolment" as a
legal requirement for all UK employers. Through this scheme it is
expected that between 5 and 9 million individuals in the UK will
start saving for their retirement for the first time.
It is hoped Auto Enrolment will help to shift the weight of
retirement benefit funding away from the welfare state and onto the
WHAT IS AUTOMATIC ENROLMENT?
During a 5½ year staging process that started on 1
October 2012, all UK employers must automatically enrol eligible
jobholders in either a qualifying pension scheme or in
"NEST", (the government-established pension scheme set up
to enable employers without their own qualifying schemes to meet
their Auto Enrolment duties), unless the jobholder is already a
member of a qualifying scheme. Once Auto Enrolment has been
completely phased in, employers will be required to contribute 3%
of band earnings per year,
(contributions are by reference to bands of lower and higher
earnings), towards an individual's pension scheme and the
individual must contribute at least 5% of band earnings per
Eligible employees are those aged between 22 and state pension
age, who earn at least £9,440 annual income, and include
permanent and temporary employees and agency workers. However,
employers must ensure that there is on-going monitoring of all of
their employees' circumstances to ensure that they auto-enrol
any individual not currently eligible but who becomes so at a later
It is possible for eligible job-holders to optout of the scheme
but they will automatically be re-enrolled in the scheme every
three years, which is aimed at ensuring individuals constantly
review their future savings and a default opt-in to an employer
sponsored retirement benefit arrangement.
SUCCESS TO DATE?
The start of October 2013 marked the 1st anniversary of the
auto-enrolment requirements and figures show that:-
2,256 employers have auto-enrolled;
1.6 million employees have been autoenrolled;
only 9% of those employees have chosen to opt-out of the
process, a much lower opt-out rate than originally anticipated;
1000 employers have signed up to NEST, which already has over
WHAT ABOUT GUERNSEY AND JERSEY?
Closer to home, recent proposals to change the States of
Guernsey's final salary scheme, and the trend of closure of
other defined benefit schemes across both Guernsey and Jersey, have
brought to the fore the importance of pensions and ensuring future
generations have a pot for their retirement.
There are currently no plans to introduce auto-enrolment
legislation in Guernsey or Jersey, however, the Channel Islands are
not immune to the type of age related pensions time bomb that the
IMF has alluded to. The average life expectancy in Guernsey is
high, at 82.24 years, and similarly in Jersey is 81.47 years.
Accordingly, taking steps to make sure individuals have sufficient
funds for their retirement has never been more important.
Awareness of the need to address future pension funding issues
in the Channel Islands is growing, and both the States of Guernsey
and Jersey are giving consideration to how to provide a sustainable
long-term retirement benefit solution for the islands. It is likely
therefore that Jersey and Guernsey's thought leaders will be
keeping a close eye on the success, or otherwise, of the UK's
Auto Enrolment policy, to see if it represents a "NEST
egg" for the future, and a panacea for the symptoms of what
some perceive to be an already overburdened dependence on public
sector retirement benefit funding in the islands.
There is, of course, no need to wait for the States of Guernsey
and Jersey to introduce auto-enrolment legislation, and some local
employers have already embraced the concept, and introduced a form
of autoenrolment into their existing employer sponsored
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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