Auto-enrolment means that all UK employers will shortly have to ensure that their employees have access to a work place pension scheme.
The government is on a drive to ensure that all UK employees have access to a work place pension arrangement into which they can save for their retirement. To achieve this, new ‘Auto-Enrolment’ legislation was introduced on 30 June 2012 and obliges every UK employer to set up a pension scheme for its employees by a set date. For many employers the deadlines are already looming. Each employer will have its own ‘staging date’ to comply with auto-enrolment. From 1 March 2013, all employers with more than 10,000 workers in their PAYE scheme as at 1 April 2012, will have reached their staging date. Employers with between 249 and 50 workers having starting dates between 1 April 2014 to 1 April 2015, and employers with less than 50 workers will auto-enrol from 1 June 2015 to 1 April 2017.
Sounds simple? Think again. There are several areas of the new legislation which require early attention and the sooner employers can start to prepare for auto-enrolment the better. The Pensions Regulator advises that an employer needs to undertake 7 stages to satisfy it duties:
- Know your staging date – when to act.
- Assess your workforce.
- Review your pension arrangements.
- Communicate the changes to all workers.
- Automatically enrol your “eligible jobholders”.
- Register with The Pensions Regulator and keep records.
- Contribute to your workers’ pension.
To date auto-enrolment has exposed a number of legal and practical challenges that our clients have viewed with a mixture of caution, dread and on the odd occasion incredulity due to elements of the legislation that have been described as “insanely complex”. Particular areas causing our clients difficulty are:
- assessing the workforce and determining which employees do or do not need to be auto-enrolled;
- the rules surrounding employees opting in and opting out, which involves a prescribed administrative process and record keeping for up to six years;
- and determining whether existing pension schemes will or will not qualify for auto-enrolment purposes.
In addition, we are already aware of employers with over 1,000 employees that are struggling to source a pension provider of their choice and it is likely that some employers will have no option other than to auto-enrol eligible jobholders in to the National Employment Savings Trust (NEST). This may be an unattractive and inefficient option for many employers in the long run.
From our experience, it is clear that medium and small employers are aware of the requirements to auto-enrol workers by a set date and the need to make contributions to an employee’s pension. However, what appears to be less clear are the administrative, data management and communication demands of auto-enrolment and the duties set out in the legislation. It is also less clear to employers that unlike the Stakeholder regime that was introduced a decade ago, auto-enrolment will be policed by the Pensions Regulator and employers that breach the new duties will face compliance notices and penalties that vary according to an employer’s size and the degree to which they float the legislation.