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How auto-enrolment shows Brexit is doomed

07 January 2019

The auto-enrolment of employees in occupational pension scheme has been one of most successful government policies over the last two decades. Yet none of the lessons learnt from this radical protocol have been applied to Brexit, despite it being the most significant change to the UK’s economic and political environment for the last 45 years.

The genesis for auto-enrolment started at the turn of the millennium. In comparison to other European countries, the UK had a tradition of generous occupational pension schemes and comparatively meagre state pension. But this system had started to fail when defined benefit pension schemes became too expensive and were closed.

To address the situation the pension commission was established in 2002 and chaired by Adair Turner. Two years later the report was delivered and its recommendations formed the bedrock of the government’s policy.

Move slowly
Auto-enrolment may not be as radical a policy as taking the UK out of the European Union but those involved knew that for a major change to be successful, they needed to take their time. Legislation was only in place by 2012 – eight years after the report of the Commission had been delivered.

That time was needed to get all the stakeholders on board with the policy to ensure its long-term success. For auto-enrolment to have longevity, it needed to have cross-party support. That meant not only seeking consensus across the political divide but making sure there were parts of the policy which each tribe could support.

For example, even though the proposals involved an element of state intervention, those less comfortable with this concept were kept on board because this only supplemented rather than replaced commercial organisations.

Other important stakeholders were also consulted – including both employers and employees. The Department of Work and Pension ran consultations up and down the country to hear the views of the future members of these schemes.

Brexit: the antithesis of long-lasting policy development
The implementation of Brexit has been the opposite of this process. Rather than taking the time to form an independent commission and then use those recommendations to consult with stakeholders and establish cross-party support, Article 50 notification was made in haste and the policy development has been in secrecy rather than in open consultation.

No attempt has been made to build bridges across the political divide or to ensure that each political tribe will be happy with parts of the policy. In fact, as time progresses, internal and external political schisms appear only to deepen. And the input of business has been limited, with many complaining their views have been ignored.

Don’t spook the horses
Not only did pension ministers take their time to develop their auto-enrolment policy, they were also slow to implement it. Policy was rolled out gradually – large companies enrolled their employees first. This allowed problems with payroll to be worked out before small companies, with fewer resources, had to shoulder this challenge.

In addition, contribution rates have been gradually increased to prevent employees being spooked by significant changes to their pay packets.

The Article 50 process limits the amount of time that the policy of Brexit can be implemented. That’s why some, such as David Allen Green, has argued that another route should have been sought to allow slower fulfillment of the policy.

But rather than admitting it needs, and then seeking, a long transition period, the government has been caught in a bizarre dance of knowing it needs the extra time but pretending it doesn’t.

Policies developed in haste and in secrecy have limited longevity. They are often short-lived, chaotic affairs which do not command support from either political parties or key stakeholders.

In contrast, open consultation and slowly development enable policies to stand the test of time. Other nations take note and learn from their success. Auto-enrolment is now being adopted by other European countries including Poland, Ireland and Lithuania. Brexit has yet to prove such a popular export.

Charlotte Moore - post author

Charlotte Moore has been a freelance journalist since 2006, with a solid technical understanding of a broad range of financial topics along with a previous incarnation as an investment analyst. Along with journalism, she has experience of producing written material for corporates and is seeking to expand this part of her business portfolio.