Auto -enrolment

I was watching TV last night when an advert came on from the Department of Work and Pensions about auto enrolment.

First thing that struck me was the title - Department of Work and Pensions. I don't get it - I employ you to do a job and pay you for it. Why is your retirement anything to do with me? Surely its up to you to sort it out?

The second thing that hit me was, after the succession of people proclaiming "I'm in" was the bloke announcing - "and the best bit is that your boss has to contribute".

Well that's true, but it's also very missleading. We as businesses have a choice of strategies:

1. we could just bear the cost like the advert suggests but that will mean we have less money to re-invest in the future of our business (in our own case as we are a labour only business, the extra cost burden is equivalent to employing an extra person!)
2. we could try to pass it on to our customers but if everyone does this, then inflation will rise and we'll all be worse off
3. we could cut our employees' wages to leave our overall payroll cost the same

It's interesting that the Department of Work and Pensions assume that because we are in business we must be making loads of money and therefore can go route 1. Of course, for many businesses that is not the case and options 2 or 3 will be taken up. Most likey for a lot of businesses is option 3, leaving employees worse off!!

The whole auto enrolment thing is a massive missell too.

If you assume that a 25 year old male on average earnings of £26000 pa puts in £200 per month (including his employers 3% contribution) then when he gets to age 65 his pension pot will be about £85,000.

Why so low? Well it's because the stock market has drifted sideways for 12 years with no sign of picking up. As a result pension funds have averaged a 1% pa return for the last 25 years.

So he then goes along with his pension pot and buys an annuity. Because annuity rates are so low, currently £85000 would buy a pension of about £4500pa.

What a waste of time and certainly not the pension that he would have expected.!

He'd have been better off saving the £200 a month or paying his mortgage off quicker!