Submitted by Sestini & Co
| on Mon, 07/29/2013 - 16:06 | In Uncategorized
Most people by now will have seen the adverts about auto-enrolment: various famous bosses from popular TV shows proclaiming “I’m in” with beaming smiles on their faces, with a voiceover impressing upon us what great news it is that our employers will be legally obliged to make pension contributions for us from now on.
The pensions regulator describe the change as follows: “Every employer has new legal duties to help their workers in the UK save for retirement. They must automatically enrol certain workers into a qualifying workplace pension scheme and make contributions towards it”.
This leaves quite a number of questions open, not least, which employees are included and how much are the contributions? What do these employees have to do in return? Why and how is it different from the current regime?
If you want the technical details, do contact us at email@example.com or take a look at http://www.thepensionsregulator.gov.uk/employers/main-steps.aspx in the first instance. Employees can take a look at https://www.gov.uk/auto-enrolled-into-workplace-pension.
Leaving the details aside, the bottom line is that all employers (including ultimately, company owners who employ themselves and no one else) will have automatically enrol a designated set of employees into a pension plan which meets the governments’ requirements, and give those employees the option to opt out within a month of being enrolled. Others employees may not be automatically enrolled but will have the option to opt in. (Hurrah for pensions simplification…)
The criteria for deciding which category an employee is in depends on their age and how much they earn. For employees who are commission or bonus-based they might potentially fall in and out of the different catergories, and employers will need to track this for each pay period…as soon as an employee becomes eligible, the employer needs to be able to demonstrate that they’ve provided them with adequate information to make an informed decision…this may start to give you a flavour of how complex this could be.
So, what are the real issues for employers?
Communication & tracking
In my view, employee communications and tracking are the two things by which employers will succeed or fail in implementation. Evidence is required of employer communication at each stage of the process and at any change of circumstances.
Do employers have the staff and resources to do this tracking? Do they have the expertise to do the communications? Or to make a helpline available for all the follow up questions once employees have been enrolled?
Getting best advice
Another issue is that pensions are regulated products: the number of advisers qualified to advise on these matters is tiny compared to the number of small to medium-sized businesses who will need to start thinking about auto-enrolment in the next couple of years. How will all those employers get access to the right advice?
Better than current provision?
We also wonder how many pension products on the market will qualify for the new regime? We suspect most employers will be forced into the standard National Employment Savings Trust (NEST) product through lack of availability of more flexible options…as existing pension pots can’t be transferred in, this could lead to employees building up multiple pension pots and being unable to benefit from the economies of scale they might enjoy with one, larger pension fund. Is it also possible that having to spend so much time and energy focusing on implementing, communicating and tracking for the new regime, there is a danger that employers won’t be in a position to do other things which might benefit their staff, like investing in training and development or providing other workplace incentives.
Big brother is watching
At risk of being ever so slightly contraversial, I am concerned that this is another step down the road from RTI: HMRC already have real-time pay information for all employees: more and more information will become available over time on which employees have opted out and why…how their pay and bonuses are calculated, including possibly dividend policies for owner-managed businesses…and on, and on.
Only time will tell how this works in practice. It’s the biggest change in workplace pensions since defined contribution plans took over from the old final salary schemes and potentially impacts on a lot more employees. I’d love to hear your thoughts and experiences on this.