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Auto-enrolment – why it makes sense to plan ahead

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With effect from October 2012, UK employers will be required to automatically enrol 'eligible jobholders' into a qualifying pension scheme.

The requirements are being staged, with the obligation falling first on larger employers. The Pensions Regulator has said it will write to employers 12 months and 3 months in advance of their staging date, to ensure employers are aware of their duties and to explain what needs to be done to comply with the requirements. Larger employers will also receive an additional notification 18 months in advance, in anticipation that these employers will need a longer lead-in time. However, although larger employers are likely to have more complex corporate structures – with perhaps a number of sites across the country, different categories of employees on different contracts, and different payrolls – they are also more likely to have appropriate internal resource and external advice to tackle the issues and to come up with a plan to implement the requirements, and be in a stronger position to set the timetable when dealing with external providers. Neither large nor small employers should be complacent about the scale of the project, and should make sure that adequate time and resource are allocated to ensure the requirements are met.

In any organisation, the key to success is to establish at the outset who is responsible for the project. Depending on the employer, the task could fall to the HR, payroll or pensions team, and the project could be led by an individual, or by a working party. Some organisations may benefit from outside project-management support. Once in place, the project manager will need to come up with a specific plan for implementation, which takes account a wide range of different issues, including:

The make-up of the work-force and their categorisation for the purposes of the legislation (the duty to auto-enrol only applies to eligible jobholders, who are aged between 22 and state pension age, and who earn over the minimum qualifying threshold of £8105, but "non-eligible jobholders" and "entitled workers" also have rights under the legislation to opt into a scheme);

  • a review of current pensions arrangements and benefits provided under those arrangements to establish whether these would be "qualifying schemes";
  • a broader consideration of pensions policy in the organisation to determine the best vehicle for automatic enrolment – current scheme or new scheme?/occupational scheme or contract based?;
  • review of the current administration systems, including HR, payroll, pensions and IT systems; and
  • most importantly, consideration of the financial implications of the proposed solution.

While there is a lot to think about at the planning stage, it is only once this has been completed and a strategy agreed that the real work will begin – in making the necessary changes to procedures and systems to ensure efficient compliance with the regulations and designing and implementing a strategy to effectively communicate with employees.

For many employers, doing everything necessary to implement automatic enrolment will be a daunting task, and the temptation for some may be to keep their head in the sand until the last minute. However, making sure that enough time is allocated to the project will have a number of key advantages for companies. In particular, spending time on the planning stage will ensure that the solution ultimately reached is the right one for the organisation, rather than a panic buy that doesn't work in the cold light of day, and which will need to be replaced at the first available opportunity. In addition, taking time to get implementation right first time will potentially save cost in the longer term, ensuring that the processes put in place are fully fit for purpose and properly tested before they have to go live.

There are also reputational and financial risks for employers that do not take appropriate action to comply with the requirements. While the Pensions Regulator has made it clear that it intends to take a "tough, but fair" approach, concentrating its efforts on those who are deliberately seeking to avoid the requirements, it does have a number of enforcement options in its arsenal. These include the power to issue fixed penalty notices of £400, escalating penalty notices at a prescribed daily rate, ranging between £50 and £10,000 per day, depending on the number of employees, and criminal prosecution.

Alison Cribbs, Director of Sackers Support Services