The DWP recently published a consultation document that aims to make automatic enrolment easier for employers and providers. In that document, it lists 10 proposals. But I think we need more – at least five more.
More detailed guidance from the Pensions Regulator.
While the Regulator has already produced 12 excellent guides, these could be improved by expanding them to include more detail. For example, I’d like to see more on how zero hours, temporary, and foreign workers are treated. I suspect that expanding the guidance in this way would also reduce the volume of inquiries received by the Regulator.
Simplification of certification.
The certification requirements should be simplified. There is a lot of confusion, for example, about what can (and cannot) be included in the definition of ‘pensionable pay’ or ‘qualifying earnings’. Specifying more precisely what these are, and improving the guidance with some practical examples or checklists, would definitely help.
Real world examples of how the certification process works in practice would also be useful, addressing questions like “Where do I send the certificate?” and “What if I want to change my certificate in six month’s time?”.
Delay the first contribution due date.
As things stand, employers must start deducting contributions from workers on their next pay day after the automatic enrolment date. In many cases, this will mean a contribution will be deducted before the worker gets the chance to opt out. And if the worker does then opt out, that contribution has to be refunded.
While the Government wants people to actually see the first contribution being deducted (as they feel it would encourage people to remain in pension saving) there is an argument that the process is needlessly complicated.
It is difficult for employers, payroll and providers to administer; difficult for workers to understand; and it can leave precious little time to give workers all the required information.
These issues could be tackled by setting the first contribution collection date beyond the opt out window. This would give employers more time to provide workers with the right information; give workers more time to understand the implications of opting out; and would eliminate the need to refund contributions on opt out.
Level the workplace pensions playing field.
There are still some fundamental differences between the rules for contract-based schemes and those which apply to trust-based schemes.
There is some work going on to address some of these differences, as evidenced by the recent paper from the DWP on small pots, proposing the abolition, in 2014, of the ‘2 year refund’ rule for occupational schemes.
However, other differences remain. One in particular is the assertion by the Pensions Regulator that Active Member Discounts, which may feature in contract-based schemes, are not suitable in the trust-based environment.
Increase the contribution rates.
It’s generally accepted that the minimum automatic enrolment contribution levels are not high enough. The Government should be looking to lay the groundwork today for increases in the required contribution rates in the future.
Jamie Clark is business development manager at Scottish Life