These reforms will require every employer to automatically enrol the vast majority of their employees into a workplace pension. Employers will need to make a 3% contribution and employees will pay 4% (the taxman will add a further 1%).
A new low-cost pension scheme – NEST – will be set up to help employers who do not already operate a pension scheme for some or all their staff. The coalition Government is reviewing the reform package, but if they go ahead as planned – as the National Association of Pension Funds (NAPF) believes they should – then the reforms are likely to have a positive impact on the pensions saving crisis that our country is experiencing. To use the phrase of the moment, workers will be ‘nudged’ into saving, or saving more.
But any change on the scale of auto-enrolment inevitably brings significant challenges. And in many cases these challenges will fall at the door of HR professionals.
First, you will need to ensure that auto-enrolment requirements match your organisation’s payroll operations. The Government is still finalising the rules around how auto-enrolment will operate for employers already providing pension schemes. We have been locked in discussions with Government for months to ensure that a sensible approach – one that works with the grain of current pensions and HR policy – is adopted.
For example, we want companies applying auto-enrolment to have more flexibility in deciding the date on which auto-enrolment will commence, rather than working to a date dictated by central Government. It seems to make no sense to us that employers should not have the flexibility to match this to their payroll processes.
It is essential that organisations start getting to grips with the changes as soon as possible. If the 2012 reforms go ahead, large organisations will be required to auto-enrol first, and that means they have only 24 months to prepare.
Employers will need to start thinking about how they will apply auto-enrolment, and into what schemes people will be auto-enrolled. Will everyone be auto-enrolled into the existing scheme at existing contribution levels, or will new staff be auto-enrolled into NEST? Or will the current scheme be modified in order to contain costs, given that auto-enrolment is likely to add to schemes’ costs?
It also means ensuring that your Third Party Administrator (TPA) is fully aware of the changes and what they need to do to prepare. Our evidence shows that a number of TPAs are not aware of the 2012 changes. If something goes wrong, it will be the employer who is found to be in breach of the law, not the TPA, so HR professionals need to start asking their TPAs how they are going to cope with the upcoming reform.
Finally, HR will not only have a responsibility to communicate the new changes to their company boards, but to employees as well. HR professionals may find themselves fielding questions about investment choices, contribution levels and the pros and cons of opting out.
Time is ticking. The Government is likely to reveal the outcome of the review of the 2012 reforms in the forthcoming weeks. The weight of opinion is that the reforms will be introduced as planned. So we need to get in shape for 2012 as soon as possible.
Our annual conference, which will take place in Liverpool from 6 to 8 October this year, will offer a series of sessions in which the new reform will be discussed in depth. HR magazine is the media partner for the HR stream of the conference programme.
Joanne Segars is chief executive, National Association of Pension Funds