DWP Publish Qualitative Research With Small And Micro Employers

The research detailed in this new report is the third study, commissioned in 2016 and focusing on small and micro employers. The Department for Work and Pensions (DWP) commissioned the first automatic enrolment research study in 2012 to explore the impact on large employers, and subsequently a second study in 2014 with medium-sized employers.

This report was commissioned to understand the impact of automatic enrolment on small and micro employers, and identify the main drivers of opt-out amongst their employees. This report presents findings from a survey of 70 small and micro employers who implemented automatic enrolment during 2016, as well as 65 employees.

Key Findings

• Employers typically felt that automatic enrolment is a necessary and sensible policy, and that it was something they just had to ‘get on with’. Some, however, felt that the financial and time burden involved made automatic enrolment problematic for very small companies to implement.

• Employers, like workers, felt the state’s role in providing for workers’ retirement must inevitably lessen, and most saw automatic enrolment as a sensible way to fill the gap in retirement income that this will leave.

• When they actually had to start planning and implementing automatic enrolment, most employers found the cost and time burden involved to be lower than they had anticipated. As a result, we encountered very few small or micro employers who described issues with complying with their duties on time.

• When seeking information regarding automatic enrolment and their own duties, employers usually relied heavily on The Pensions Regulator’s website, especially when first finding out about automatic enrolment. Once they had decided upon a provider, that provider’s website became the preferred information source for many.

• Employers who already used an intermediary (for example an independent financial adviser, payroll, or accountant) tended to go to them for limited ‘free’ advice. Far fewer employers chose to employ an intermediary on an adhoc basis to help them fulfil their automatic enrolment duties.

• Most employers communicated automatic enrolment to their workers verbally and in informal contexts within the workplace, before distributing the statutory letters.

• Employers were generally aware of the planned increases in the minimum contribution rate (phasing), and for those who were not, our explaining the policy to them did not cause much surprise or concern. Some expected to cover the additional costs associated with phasing from future wage increases. Some also expressed paternalistic concerns that their workers may opt out of after phasing.

• Workers who remained in the workplace scheme after being automatically enrolled tended to accept that pensions are the responsibility of the individual, alongside that of their employer. Workers who opted out tended to be at the extremes of provision: either they felt they simply could not afford to save anything, or they had other pension provision that they already felt confident would provide the level of retirement income they needed.

• Workers largely found out about automatic enrolment through the media and their employer: few sought out other written information. Where workers remained in a scheme after being automatically enrolled, their choice (if they made a choice at all) was usually quick and instinctive. In contrast, the decision to opt out tended to require more active thought, although those who opted out were typically much firmer and more confident in their choice than those who remained in.

• Workers who remained members of the scheme following automatic enrolment appeared to be relatively relaxed about the first stage of phasing (the increase from one to three per cent worker contribution), having seen that the impact to date on their take-home pay had been low. A few were concerned about the rise to five per cent, particularly where this was exacerbated by other aspects of uncertainty in their lives, e.g. possible house purchases or potential salary increases. Workers who opted out tended not to be concerned about phasing, either because it made schemes even less affordable for them, or because they felt the increase would not deliver significantly better returns than the scheme had before phasing.