A new government report into auto-enrolment has concluded that while the roll out has been successful for larger companies, the real test is still to come.

The report by the Committee of Public Accounts said that by the end of August 2015, 58,000 employers had enrolled 5.4 million people into new workplace pensions.

From January 2016, auto-enrolment is extended to 1.8million small employers.

Summarising concerns about the challenges faced by small business, the report said that the Federation of Small Business (FSB) emphasised that the next two years would be the real test.

"While small businesses are aware of automatic enrolment, awareness is not the same as understanding, particularly when it comes to making choices between pension providers and schemes."

The report made a variety of recommendations including progress reports on the process, the provision of real-time information, simplification of online tools, and a clear timetable for how smaller pension pots should be treated.

CEO of NOW:Pensions, Morten Nilsson, said the Public Accounts Committee is right to highlight the risk of auto enrolled savers being disappointed with their pension pot.

He said: "Auto enrolment minimum contributions will not be enough for a comfortable retirement - in order for the success of auto enrolment to last into the future, contributions to workplace pensions need to be increased."

Nilsson added that one of the ways they would like to see this done is via the removal of 'qualifying earnings' from the auto enrolment calculation so that contributions are based on every pound of salary.

Qualifying earnings are the band of earnings on which contributions to auto enrolment are calculated and for this tax year the band is between GBP 5,824 and GBP 42,385 a year.

This means the first GBP 5,824 of an employee's earnings does not count for the purposes of auto enrolment.

"One of the side effects of auto enrolment will be a proliferation of small pension pots and the PAC report is right to emphasise the importance of getting this issue resolved," he said.

"Small pension pots risk being forgotten about and eroded by charges over time and one way to address this would be the creation of a central Pensions Dashboard where savers can view all of their pension savings in one place.

"Improving visibility would help encourage savers to consolidate smaller pension pots but government need to bring down the costs of transfers and simplify the process."

First published 28.01.2016

Lindsay.sharman@wilmingtonplc.com