As UK Plc begins to come to terms with auto-enrolment requirements, it’s may be worth employers looking ahead to see what the next legislative step in the pension reform process may be.

As I have publicly stated many times over the last few years (and have doubtless commented on this blog also), the levels of contributions required by legislation are really nothing more than a drop in the savings ocean, and will produce minimal pensions based on current projection basis.

It logically follows that the contributions will have to increase significantly to provide anything like a tangible pension for employees come retirement. But how to do this when the world is facing the worst financial downturn in more than a century?

Well, once auto-enrolment is put to bed, we may well see ‘auto-escalation’.

Now this concept is not new, and is best known as ‘Save More Tommorow’. It works on the simple basis that where employees can’t bring themselves to pay extra pension contributions today, it’s relatively easy to get them to commit to paying higher contributions in the future. In effect, the employee agrees to his or her contribution increasing automatically in the future by a set amount (say 1% each year), which can have a significant impact on the resultant retirement income. This is a good and sensible idea, and one that I have endorsed for some years.

But what makes this newsworthy is that the Pensions industry is starting to raise awareness of ‘auto-escaltion’, and some clearly feel this is the next step in the pension reform story. I am not convinced this idea has yet even featured on the legislators radar, but with increasing background noise, I expect to see at least one of the political parties verbalising this idea by the middle of the decade. And given that we have a major issue with pension savings in the UK, I think it entirely likely that this may well make it to legislation by 2020.

So, it looks like the constant pace of change referred to yesterday (see my post https://www.jelfgroup.com/blog/2011/11/all-change/ ) will only gain momentum as the decade progresses.

Best regards

Steve