It is no secret that from October 2012, every employer, starting with the largest by payroll size, will have to automatically enrol eligible workers into a qualifying workplace pension.
The rules, set out in the Pensions Act 2008, are designed to get up to eight million workers who are not currently saving, or are not saving enough, into a pension to start investing with financial assistance from their employer and the taxman.
The larger employers have had it on their radar for a while, but in my experience, many smaller employers that have never had a pension scheme do not know what is going to hit them. In the first place there will have to be a lot of education to employees who have never invested in a pension in their lives. According to the government between 8 and 10 million of them, depending on which surveys you look at.
To me that seems like an awful lot of investment in education that will have to take place in a short time, especially when you consider nine out of ten current defined contribution members cannot name the funds their contributions are invested in, according to research from Standard Life. I must admit this is certainly the case in my personal experience.
Bearing in mind that people will have to take ownership for the investments that they will look to provide for them in retirement, I find this slightly alarming as those that are pension scheme members generally shy away from making active decisions on funds.
Understandably, the majority of people are not familiar with the pension funds in which they invest. Communication on the whole has not been the pensions industry strong point, which is something that needs to be addressed when you consider that fund selection plays such a key role in determining how much, is received in retirement.
However, tools providing information and engaging savers with their investment decisions are improving and employers and trustees have to ensure the default fund strategy provided is sufficiently dynamic to engage the full range of members.
Auto-enrolment presents a fantastic opportunity to get people engaged in their long-term savings. It is vitally important that people take independent investment advice. If this new wave of pension savers ends up in investment funds that are not suitable for their individual needs, and they don't review their investment choices regularly, there will be problems down the line.