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Time running out for employers on auto-enrolment

The 2008 Pensions Act will be something employers will never forget. The duties laid on over 1.3 million employers in the UK by that seminal act will soon assume a place high up in the priorities of employers, their advisers and the financial services industry. If left too late, it may also consume much of their time.

But there is not much time. The first employers who need to abide by their new duties are little more than a year away from their staging dates.

The 2007 and 2008 Pensions Acts laid the groundwork for the biggest structural change to our pension system for over half a century. They marked the end of state provision of earnings-related, unfunded (but paid for) workplace pensions and heralded the beginning of a new paradigm of funded workplace pensions for all, paid for at least in part by compulsory contributions from employers. The structural shift is also from compulsory workplace pensions (no employee could opt out of the National Insurance system) to a strange sort of voluntary compulsion, where employees must be auto-enrolled into their employers’ schemes but do not have to stay in them.

This switch comes with many extra duties for employers to comply with and they will need to keep detailed records for a number of years so that they can demonstrate compliance if they are called to.

The costs this will impose on businesses large and small (even employers with one employee) are of two types. The easiest to appreciate is the cost of compulsory contributions to their employees’ pensions which are now set in the statute books. The second, however, is not so obvious but could be highly significant and that is the cost of complying with the regulations and duties imposed on them by the many recent Pensions Acts.
Both these costs should by now feature in the five-year business plans of all UK firms.

That is why I formed Paradigm Pensions and have built JargonFreeBenefits compliance product for SME firms. It seemed to me in 2004 when I first heard about the changes planned that there would be no more important issue in the pensions world than this. It is why I decided to devote all my time to it. It is a pension issue in that it is brought about by a Pensions Act and because employers must now provide pensions for their employees but it is a human resources issue really, something that is doubly difficult for smaller employers who traditionally have had access to little or no human resources support.

You will read much about employer compliance, HR functionality, payroll system updates and the like over the next year or so and I would imagine financial journalists will write about little else as the first wave of big employers gives way to the subsequent waves of smaller firms coming up against the beach of compliance reality. But as Bob Dylan once said: “Time is short, if on time you depend.” And we all depend on time.

Steve Bee is managing partner at Paradigm Pensions


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