Don’t underestimate the responsibilities from auto-enrolment, says Steve Bee
For the 1.3 million employers who are about to be required to auto-enrol their eligible employees into a workplace pension scheme, the argument as to whether or not these latest pension reforms will actually succeed is, I think, largely irrelevant. We’d do better to focus our attention on the enrolment criteria.
From the employer’s point of view, the reforms will of course mean that they will need to make a qualifying workplace pension scheme available to their employees and they will then need to populate those schemes and contribute towards the pensions of employees who do not opt-out. But, whether employees opt-out or not, employers will still need to perform the same regular functions, such as auto-enrolling and re-enrolling bo
th new employees and existing employees who are not in their pensions scheme for one reason or another.
Who’s In, Who’s Out…?
Some employees won’t be in the company’s workplace pension scheme for many different reasons. There will be those, for instance, who are not eligible for auto-enrolment at all because they are either too young, too old or not earning enough. And conversely, some of those who are not eligible might take up the offer of voluntary membership of the qualifying scheme and thus become eligible for auto-enrolment. They can do this by completing an opt-in form that the employer must respond to correctly if they wish to remain compliant.
Other non-eligible employees will not be eligible for auto-enrolment into the qualifying scheme, but will still be eligible to be members of another workplace pension scheme (which an employer must have for the purpose either as a separate scheme or a separate section within their qualifying scheme) where the employer is not required to contribute on their behalf.
These employees are able to complete what is called a ‘join-in’ notice if they wish to join a pension scheme. In their case, the employer will be required to facilitate their pension scheme membership by deducting contributions from salary and passing them over to their pension provider and meeting all the usual timescales that go with that.
Still other employees will not be in their employer’s qualifying scheme because, having been auto-enrolled, they opted-out. Employers must set a re-enrolment date for each of these employees and ensure they re-enrol them at the right time.
And Whose Position Might Change?
For those non-eligible employees who are not in the qualifying scheme – which will include those who have ‘joined-in’ to a non-qualifying scheme, or a non-qualifying part of a qualifying scheme – employers will have to look carefully at their particular circumstances in every single pay period to see whether things have changed and whether action needs to be taken if the employer is to remain compliant. For instance, some employees may have become older, they might be earning more, or they might have reached a re-enrolment date.
A Hefty Compliance Cost
It all adds up to a good deal of work for employers – and the load will be much the same regardless of whether or not all their employees opt-out of their workplace pension scheme. And that workload, of course, will come at a cost for employers.
In fact there are three costs that I think employers will need to bear once these new reforms begin. First, of course, is the obvious cost of paying the minimum required contributions into the pensions of those employees who are auto-enrolled and stay in the pension scheme. The second cost, which is more difficult to quantify, is the cost of both the initial and ongoing compliance procedures an employer will need to adopt.
And thirdly, there is the additional risk that further costs could be incurred if an employer gets things wrong and is not compliant. The costs arising from putting things right, and possibly in fines for having got things wrong in the first place, are impossible to quantify in advance.