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Employers’ auto-enrol confusion brings advice opportunities

Mark Pearson MM blog

Some employers have already entered the auto-enrolment process ahead of their staging date while others may be waiting until closer to that date before acting. All should be ensuring that they understand what their statutory duties are and preparing accordingly.

Larger employers are first to have to comply with the auto-enrolment of employees from October while small/medium-sized employers have time to fine tune pension arrangements before going live.

Worryingly, reports still emerge of employers remaining unaware of their duties and their financial commitment.

Perhaps somewhat hidden as a result of the focus on staging dates is that, for all employers, duties in relation to safeguarding of individuals came into force on 1 July and protect not only current employees but job applicants as well. Failure to comply with these rules is likely to land an employer before a tribunal.

Many private businesses do not operate workplace pensions other than a stakeholder pension. Unlike stakeholder pension, when they meet the eligibility criteria, the employee will automatically be enrolled in the scheme by their employer and, along with their employer, will have to contribute.

If some employers are still oblivious to the new regime, imagine the shock for employees when the first contributions are deducted from their pay.

It is not just eligible jobholders that employers must think about. Other employees have the right to opt in or must be given access to pension savings. The employer needs to ensure that all classes of employee are catered for, whether they are an eligible jobholder, a non-eligible jobholder or an entitled worker.

The Pensions Regulator will be looking at employers carefully, ensuring they are fulfilling their statutory duties. They will be looking for evidence that a scheme meets the statutory requirements, meets the quality test and is certified as such or that it exceeds the quality test.

Those employers who operate a workplace pension may intend to use it for auto-enrolment but they will need to ensure it meets the requirements for a qualifying workplace pension. This means looking particularly at contribution levels and deciding whether any changes are required.

A multi-employer pension fund, for example Nest, Now:Pensions and The People’s Pension, might be viable alternatives to an employer’s own scheme or could be used alongside an existing scheme for certain classes of employee.

Employers need to think about how the introduction of auto-enrolment is going to impact on their employees and how they are going to communicate the change. There is a lot of very useful material readily available but it may be difficult for employers to present this without risking the danger of implied advice.

It is also understandably confusing for an employer whose core activity is not employee benefits that non-eligible jobholders have a right to opt into an auto-enrolment scheme and entitled workers must have a pension scheme made available to them.

In this respect, there is a very significant role for advisers to play in ensuring that employees understand the legislation, where they “fit in” and the benefits of the arrangement being provided by their employer.

The Pensions Regulator will write to employers 12 months and three months before their staging date, which provides advisers with an opportunity to contact. The staging date timeline can be found here.

Mark Pearson is business development director at Origen Financial Services

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Opportunities such as this perhaps?

    So Mr Employer you are confused about auto enrolment?
    Well let me see if I can’t save you some money.
    You say you have 30 employees at an average salary of £30,000, so come your staging date this will cost you £27,000. And that’s not counting the significant exta expense the administration and bureaucracy is going to cost your accounts dept.
    What you can’t afford it? Business hasn’t been that good – you’re struggling to keep your head above water?
    Well that’s not all the bad news – your employees will lose and extra £1,200 p.a.
    What they haven’t had a rise for 3 years because of the difficult trading conditions. Well then won’t they be chuffed!
    Oh, but they do make up their pay with overtime. Ah, but you see this will be counted as well.
    Oh dear you think that you will have difficulty then getting them to do any overtime – I see your problem.
    Well if I was to solve this headache and charge you £1,000 for doing so I guess it would be money well spent?

    Good – well it all revolves around two little words – ‘Opting Out’. There is another option – you can let one employee go and then not have any extra expense, but this has two downsides:

    1. It doesn’t help the employees – they still suffer deductions.
    2. If you are down to the bone on employee numbers now losing what amounts to 3% of the workforce won’t help will it?

  2. Apart from details of just what they’re going to have to do to avoid being fined for non-compliance, I think that all most small employers are going to want is a software package that will relieve them of as much as possible of the administrative burden of a compulsory scheme (NEST or other) and at the lowest possible cost.

    Given that NEST will impose unwelcome additional cost burdens by forcing employers to auto-enrol their workforce into a scheme in which they’d be highly unlikely to participate voluntarily, that’s not my idea of “an advice opportunity”.

    And how many small employers are going to be happy at the prospect of having to pay fees at a minimum rate of £120/hr? You’d be stupid to try doing it for less.

    As for the employees: “So, whether I want it or not (which I don’t) I’m going to be auto-enrolled into this new scheme that’ll cost me X% of my take-home pay? And even though I’ll be able to opt out, a month or two later I’ll be auto-enrolled again, ad infinitum, until eventually I just give up the fight? Great! Just what I need. And whilst you’re here, Mr Adviser, let’s talk about a bit of life insurance and a £50 p.m. savings plan.

    Really profitable stuff that is ~ not.

  3. HMG has effectively handed over the pensions market back to the major industry players. Is this progress ?

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