Automatic for more people
The Pensions Regulator may have to use its powers more often as auto-enrolment starts to filter down to smaller companies.
The Pensions Regulator has recently published its ‘Automatic Enrolment Compliance and Enforcement Bulletin’ which gives information on powers it has used with employers in relation to auto-enrolment.
As part of the regulator’s armoury, it has powers to impose financial penalties, demand information and inspect premises for non-compliance.
The automatic enrolment of employees and certain other workers into workplace pension schemes draws on ‘nudge theory’ – the notion that individuals can be nudged into taking beneficial actions that they might otherwise avoid, such as joining and contributing to a pension plan. Millions who might never have got round to applying for a pension are expected to save in schemes organised by their employer.
The latest update reveals it had closed a total of 917 cases and used its powers 23 times for the period 1 July 2012 - 30 June 2014.
These may not seem big numbers, but bear in mind that for the most part, only larger companies have been involved. For example, as at 1 February 2014, auto-enrolment only applied to companies with at least 250 employees. These are typically firms that tend to have the necessary infrastructure and resources to support the new requirements.
The Department for Work and Pensions (DWP) estimates that the new rules could almost double private pension income by the time people now starting work reach their retirement.
Since then the threshold has started to drop, and by 1 October 2014 companies with at least 60 employees will be required to operate auto-enrolment.
It stands to reason that a greater percentage of smaller companies are more likely to have insufficient resources to ensure they meet full compliance. So, as the number of firms involved with auto-enrolment increases and the size of those firms decreases over the coming years, it’s likely the regulator will have to step in and use its powers more frequently.
It is not something that can be left to the last minute.
Complying with auto-enrolment obligations is a complex process, and it’s important that businesses develop an action plan; auto-enrolment imposes new duties and additional costs. There are many decisions to be made and potential pitfalls at every stage. There is then the ongoing process of ensuring that all employees are auto-enrolled as they become eligible and repeating the process every three years for any who have opted out.
Almost all employers are affected. The main exception is a company with only a single employee who is also a director. The range of employers affected, therefore, runs from multi-national companies to a family who employs a nanny.
The change affects all ‘workers’ between ages 16 and 75 who work, or usually work, in the UK. ‘Workers’ includes employees and others who are contracted to work for you, except as part of their own business. Agency workers are included, and employers are likely to be responsible if they pay them directly.
Schemes must meet a certain criteria to qualify
Eligible jobholders must be automatically enrolled into a suitable pension scheme unless they are members of an existing ‘qualifying scheme.’ It cannot be assumed that a current scheme will necessarily be suitable for automatic enrolment, because it may not meet the requirements for payment levels or include an appropriate agreement with the pension provider.
Non-eligible jobholders must be offered a pension on the same basis as eligible jobholders, but they must apply to join rather than being automatically enrolled.
The Pensions Regulator has produced detailed guidance and pension providers can help to some extent, but many companies value the expertise of an adviser who can look at their particular circumstances and recommend solutions.