If the new national pension scheme fails to take off, pension tax relief could be scrapped.
All employees in the country are going to be automatically enrolled in the new pension scheme over the coming years. Everyone has the right to opt out of the scheme though and, if too many people choose to do this, the Government may consider making membership compulsory. If this happens it is likely that the tax breaks that currently exist when paying into a pension will be scrapped.
This is because there will be no need for incentives that encourage employees to save for their pension, if membership in a pension scheme isn’t optional.
The position on tax breaks and pension schemes will be reviewed by the Government in 2017 but it is possible that, if pension opt-out rates reach 50%, the national pension scheme will be made compulsory. If this happens tax relief may be seen as unnecessary.
Where auto enrolled pension schemes have already begun, the opt-out rates have been encouraging. Only 8% of ASDA employees opted out after the introduction of the scheme at the supermarket in October last year, although 16 % chose not to stay enrolled when Royal Mail’s introduced the scheme last month.
However, because the scheme is being introduced by the biggest employers first, that is companies who have the money and resources to launch the programme alongside ‘education’ schemes to explain the benefits of the pension schemes to staff, there are fears that when auto-enrolment reaches smaller firms, who cannot afford such resources, the opt-out rate will be much higher.
