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Fears for small employers as pension auto-enrolment comes into force

A landmark drive to place people into workplace pensions faces "significant risks" as smaller employers are brought on board the scheme, according to a report from the National Audit Office (NAO).

Some 58,000 employers have placed 5.4 million people into workplace pensions as a result of automatic enrolment, which was introduced in 2012 to head off fears of a looming old age savings crisis.

The scheme started with the biggest employers, which tend to have the most experience of pensions. But a further 1.8 million smaller employers will need to automatically enrol their workers by 2018. It is now being rolled out to employers with fewer than 50 members of staff.

Around 900,000 employers who are being brought into auto-enrolment only have one or two workers, such as those who employ a nanny or a carer.

Concerns have been raised that many of these employers will have little or no previous pensions experience. The Government recently launched an awareness drive aimed at smaller employers featuring a giant purple hairy creature named "Workie".

Under the scheme, employers must enrol people who are working in the UK, earning more than £10,000 per year, who are over 22 years old and who are under state pension age into a workplace pension.

Eventually, nine million people are expected to be newly saving or saving more in a workplace pension.

The NAO said that while the Department for Work and Pensions (DWP) has successfully introduced automatic enrolment to workplace pensions for large and medium-sized employers, there are "significant risks ahead".

The Pensions Regulator previously expected the number of smaller employers to take part in automatic enrolment to be 1.3 million.

But this figure was recently revised up to 1.8 million due to growing numbers of new start-up firms and fewer businesses going bust in the tough economic climate than expected.

The NAO said the increase will put pressure on the Pensions Regulator, which is overseeing the roll-out of auto-enrolment, and Nest, the pension scheme set up to help employers meet their new duties.

Amyas Morse, head of the NAO, said that so far, the automatic enrolment programme has delivered value for money, and the DWP, the Pensions Regulator and Nest have worked closely together and have a clear understanding of their roles.

But he continued: "The volume of smaller employers will impose significant pressures."

So far, the numbers of people opting out of auto-enrolment has been lower than expected, with opt out rates ranging between 8% and 14% among the companies that have joined up to the scheme so far.

Initially, it was expected that nearly one in three (28%) workers would opt out.

But in the longer term, the scheme will need to make sure that savers are shoring up enough money to generate higher retirement incomes as people live for longer, the NAO said.

The DWP originally expected the scheme to cost £1.1 billion to put into place, but it reduced this to £1 billion in its 2015 estimate and the report said that spending on the programme is on track .

A DWP spokesman said: "We welcome the NAO's recognition of the success of automatic enrolment. Great strides have been made with the enrolment of more than five million people into a workplace pension.

"As the NAO makes clear, the challenge now is to make sure hard-working people at every type of employer get to enjoy this major financial benefit.

"This Government is committed to providing security for working people at every stage of their lives, and that includes giving people the chance to plan for a financially secure retirement. Continuing to prioritise the successful roll-out of automatic enrolment is a big part of this."

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