By the end of 2018, all UK employers will be subject to a duty to enrol their employees into a pension scheme and to contribute to the scheme. Some young, old and low-earning employees are excluded. The Government's aim in introducing the duty is to improve the UK's retirement savings culture.
Many employers have been using consultants to help them set up their schemes and have passed on their charges to scheme members. In April, the Parliamentary Work and Pensions Committee decided that this approach is likely to undermine the Government's aim, as members will choose to opt out of schemes if they see a large proportion of their pension pot swallowed up by charges. Members who change jobs regularly are particularly impacted. Following this decision, the Government has now effectively banned the passing on of charges under consultancy arrangements agreed after 9 May this year and is considering banning charges under earlier arrangements.
Although the ban is good for members, who will now keep more of their pensions savings, it is likely to increase costs for employers. It may lead some to make bad choices on scheme design or even to try to avoid their duties. A report from the Centre for Economics and Business Research estimates scheme set-up costs for businesses with up to 500 employees will range from £8,900 for smaller employers up to £22,300 for larger employers. Oddly, the Department for Work and Pensions (DWP) has not produced a regulatory impact assessment for this change as it states that there will be no direct cost to business from the ban.
The DWP's consultation on extending the ban to consultancy arrangements entered into on or before 9 May 2013 is a worrying step and one that could lead to disputes as to how the costs of implementing auto-enrolment are to be met under those contracts. While a ban from 10 May was foreseeable from DWP announcements, applying one from an earlier date is an undesirable, retrospective remodelling of the regulatory and commercial landscape which will undermine employers' and providers' confidence in the regulatory system.