Pensions Auto-enrolment

Posted on: November 27th, 2014 by RRL-admin No Comments

I think it was Niels Bohr who said “anyone who is not shocked by quantum theory has not understood it”.

The same applies to Pensions Auto-enrolment.

Since July 2012 employers with more than 250 employees have been starting their schemes, and since April Fool’s Day this year employers with between 50 and 249 workers have had to start joining up.

Auto-enrolment applies to all employers – there are almost no exceptions – and the only question is when your “staging date” will arrive – this is the date on which you are required to enrol all of your employees who pass complicated and confusing tests of eligibility into a pension scheme which, by the staging date, you must have already put in place. Start making serious plans at least one year ahead, as getting ready for that date is more complicated and time consuming than you might imagine.

The real disasters can be expected to begin in 2016, as more than half a million employers of fewer than 50 employees are going to be required to begin operating their schemes during that year, and in 2017 there will be another three quarters of a million hopping onto the treadmill.

The problem is at its worst for these “small” and “micro” employers, because the rules are just the same for them as they are for the largest employers in the country, but of course the burden will fall more heavily on the smaller businesses.

Many employers tell me that they plan to use outsourcing to see them through the process – popular choices are accountants, and curiously pension consultants come quite low on the list of intermediaries that employers believe will solve all of their problems.

IFAs I have talked to about this say that there is likely to be a very serious problem for those “staging” (joining the party) in 2016 and 2017, largely because of the sheer numbers who will need advice and assistance to set up their compulsory pension schemes.

The auto-enrolment rules are complicated and it is going to be difficult for advisers to provide the necessary level of assistance at a cost which makes it worthwhile for them and affordable for the employer concerned.

The fewer employees involved, the less likely any pension provider is to be prepared to take them on as a client and offer a suitable scheme, which is going to mean that many of the smallest employers (for example,  “micro” employers with 4 or fewer employees) are going to be forced to use the Government-provided NEST scheme – it remains to be seen how effective this is and indeed whether even NEST is able to cope with the huge volumes of employers who will need to sign up during 2016 and 2017.

If you are an employer you need to protect yourself by starting to plan for auto-enrolment now – do not underestimate how complex this new obligation for employers is, and leave yourself time to devise and implement your strategy for coping with it.

Article by James Bailey for Business Cornwall (www.businesscornwall.co.uk)

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