- The real challenges for pensions auto-enrolment are yet to come, a former Downing Street adviser warns.

Ros Altmann – an adviser to Tony Blair during his premiership – was speaking on the first anniversary of the first and largest employers becoming legally obliged to automatically enrol employees into a pension scheme and pay contributions for them too.

So far, around 2300 employers have automatically enrolled 1.6million workers into their pension schemes. By 2018, over 1 million employers are expected to have enrolled over 11million workers.

Altmann says: “The auto-enrolment programme has started with the largest firms in the country first.

“Initial indications from the large firms suggest the policy is starting quite well, with the Government pointing to very low opt-out rates - around 90% of workers are staying in (although more recent figures suggest opt-out rates may be about 25% because the DWP figures only looked at those who opted out on day one, rather than those who chose to leave before the end of the first month.â€

But she says that opt-out rates are likely to increase as smaller firms start to join.

She also points out that NEST - which is the pension scheme that the Government has set up – is not a low-cost provider.

Altmann says: “NEST charges 1.8% as an initial fee on all contributions - and a 0.3% annual charge. For workers who stay in NEST over many years, that fee will not be so bad, but for those who are only in it for a short time (such as older workers who are auto-enrolled and then reach retirement soon afterwards) NEST can end up being a very high charge scheme.

“I believe that the Government must urgently revisit NEST's charging structure.â€

And she adds: “The real challenges are yet to come. Employers have no idea of the complexities they could face and need to be warned about preparing well ahead. In addition, the policy needs further development if we are really going to ensure better later life incomes for future generations. The changes include ensuring charges are reasonable, increasing contribution levels, simplifying the processes and providing better value income options.â€

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