At the end of 2011 the Government announced a delay in auto enrolment pensions for businesses with 50 employees or less. However, this delay could do more harm than good if employers don’t take action now, says Mike Jenkins, business development manager at Welplan
The Government's plans to automatically enrol millions of non-savers into workplace pensions over the next few years could be a pivotal moment in this country's struggle to address its developing pensions crisis. The auto enrolment rule, driven by the Pensions Act 2008, will affect every company in the hvacr sector with one or more employees. Employers will be required by law to automatically enrol all eligible jobholders - those workers aged between 22 and the state pension age (SPA) earning more than the minimum salary threshold (currently £7,475 per annum) - into a qualifying workplace pension scheme and make an employer contribution towards it. If successful, the auto-enrolment programme could be the defining moment when we stop going backwards and start rebuilding our long-term savings.
Originally, auto-enrolment was due to take place over a total period of four years. In November last year, however, the Chancellor announced that there would be a delay in implementing the requirements by up to 12 months for small businesses, those with less than 50 employees. Given today's tough economic climate it makes sense to delay the added financial cost and commitment of automatic enrolment and minimum contributions for small businesses. But, this must not mean a delay in planning for the new ruling.
The Chartered Institute of Personnel and Development (CIPD)'s survey report Labour Market Outlook: Focus on 2012 Pension Changes recently revealed nearly half of employers have no idea of their auto-enrolment staging date. For the largest companies, those with more than 120,000 employees, the requirement to enrol workers automatically in a qualifying pension scheme will begin on 1 October 2012 - in just 10 months' time. This will continue one month later with employers of over 50,000 staff. All remaining employers will be phased into the regime on a monthly basis, dependent upon their number of employees.
Despite the ticking clock, research suggests that the auto-enrolment rule is not high on the agenda of many firms. Charles Counsell, Executive Director for Employer Compliance at the Pensions Regulator, said that a significant proportion of all employers say they will leave it as late as possible to comply with auto enrolment and a fifth of large employers still believe they can complete all the steps in up to three months.
Businesses are grossly underestimating the workload and the potential cost implications. There is no time to waste, the reforms must proceed and will affect everyone sooner or later. No matter the company size, all employers need to start planning for auto enrolment imminently - we must be prepared! By taking a proactive rather than reactive approach to preparing for auto-enrolment, Charles Cotton, CIPD Reward Adviser, explained organisations will be better placed to phase in any potential cost impact.
Businesses need to assess the suitability of any existing pension arrangements and select the best scheme for their company and employees.
Key tasks for employers are to:
- Consider the potential costs of compliance in terms of both contributions and processes.
- Consider the potential administrative impact of adapting HR, payroll and pension, and IT systems.
- Be ready to implement auto-enrolment and re-enrolment procedures in time for the allocated staging date.
- Be ready to pay the minimum required contribution.
- Decide a qualifying scheme that will fulfil new pension obligations.
- Be ready to register the qualifying scheme with The Pensions Regulator (TPR).
- Communicate the changes to employees.
Employers will also need to put in place arrangements that enable them to carry out a number of required duties and meet their statutory pension responsibilities.
These include implementing:
- An enrolment window - employers will have a three month window to automatically enrol eligible jobholders.
- An opt-out window - employees will have a one-month window to opt-out of the scheme.
- The option to opt-in - those who earn below the automatic enrolment minimum earnings threshold will be able to opt-in and the system must enable this.
The Government has set up the National Employment Savings Trust (NEST) scheme, primarily to help small employers and low to moderate earners comply with the reforms. As a new off-the-shelf scheme, NEST has limited experience to draw upon, and a qualifying scheme, either run in-house or by another provider, may better suit your business needs.
Welplan Pensions, the preferred pension supplier for the H&V Operative National Agreement, is able to offer assistance and a solution. Welplan Pensions is a company defined contributions (DC) pension scheme that has been providing pensions for the building services industry since 1988. Welplan takes care of auto-enrolment and reenrolment, providing a company-wide pension scheme for operatives and clerical staff, and offering advice and support through a dedicated helpline, relieving clients of administrative burden.