From October 2012 most workers are being auto-enrolled into a pension plan by their employer (under the Pensions Bill that also abolished the Default Retirement Age during 2011). Employees will need to make contributions to the scheme as will their employer, unless they (the employee) choose to opt out.
The start date (called a ‘staging’ date) when each employer needs to provide a pension scheme to their workers (and make contributions on their workers’ behalf) is dependant on the size of the business – full details of the scheme and the staging dates are here.
When we first reported on this in September last year a recent survey by the Chartered Institute of Personnel and Development (CIPD) had found that 53% of workers were ‘totally unaware’ of this.
This month another survey from Pension providers Scottish Widows found that 61% of workers are still unaware of this new pension saving scheme.
Of those who were surveyed by Scottish Widows 61% who knew about the scheme heard about it from the Media and only 16% of people were aware of the scheme through their Employer.
What do employers need to do?
Under the legislation employers must communicate to their workers, in writing, when their pension scheme is starting and how the workers are affected by this. The employer must tell them they have been automatically enrolled and also that they have the right to Opt Out if they want to do so.
The Government Pensions Regulator will contact all employers 6-12 months before their staging date with full details. Employers must register with the Regulator and give them details of their scheme and the number of people that have been automatically enrolled.
If an employer does not currently offer their own pension scheme they will need to choose one, or they can use the new National Employment Savings Trust (Nest) scheme. If an employer already has their own pension scheme they will need to check it is a ‘qualifying’ scheme and confirm this with the Regulator – a qualifying scheme must not impose barriers, such as probationary periods or age limits for members; or must not require staff to make an active choice to join.
The Department for Work and Pensions have published a ‘toolkit’ for Employers.
How will employers deal with the costs of pension auto-enrolment?
The legislation has strict anti-avoidance measures for employers who do not offer the scheme - full details here.
However, it is now becoming clear that pension auto-enrolment could have an impact on other benefits that employers offer, as obviously they bring costs for employers!
For those Employers facing a 2012 or 2013 start date for pension auto-enrolment, many will already have been making moves to save the extra costs of the pension schemes they will need to provide by:
- Getting rid of, or reducing, other benefits
- Offering lower pay rises or pay freezes (research by the Chartered Institute of Payroll Professionals in July found that 15% of employees would have a pay freeze or a pay cut in the future)
- Introducing salary sacrifice schemes (that give the employer and employee tax and National Insurance savings) for things like health screening, pensions, cars, childcare vouchers
- Cutting jobs
However, there is also evidence that some larger employers have used this as the time to take a look at their whole benefit package and increase their provision of other benefits or provide a flexible benefit package (where staff choose what they want from a ‘menu’ of benefits) – realising that a basic pension scheme may not be a sufficient benefits package to attract the best talent.
Recruitment Agencies could be the hardest hit sector
Following on from the uncertainty and cost pressures of the provisions of the Agency Workers Regulations last year, pensions auto-enrolment will also have a large impact on Recruitment Agencies who employ PAYE temps or umbrella workers as they will need to be auto-enrolled too (only the truly self-employed are not covered).
A grey area that Recruitment Agencies have found is whether the 3-month waiting period before workers can join their company pension scheme is calculated from the date of registration with the agency or the date an assignment starts. While Recruitment Agencies may be able to absorb some costs this will ultimately mean that the costs will be passed on to their clients (the end-hirers).
Watch this space for more details! We hope that it’s not going to be as complicated or controversial as the Agency Workers Regulations!
If you are need help or advice about this then please talk to The HR Kiosk, a Human Resources Consultancy for small businesses, run by the author of this article, Lesley Furber.
Please note that the advice given on this website and by our Advisors is guidance only and cannot be taken as an authoritative or current interpretation of the law. It can also not be seen as specific advice for individual cases. Please also note that there are differences in legislation in Northern Ireland.
Photo by Sean Hering