Auto-enrolment represents one of the most far-reaching changes for decades in the legal requirements on employers.
The essential point of auto-enrolment is that all employers have to automatically enrol virtually all employees into a pension scheme which meets specified criteria. Employees will have the right to opt out. Those who do so must be automatically re-enrolled every three years (but can continue to opt out).
The requirements are being introduced over a period of years, initially dictated by the number of employees on your payroll. This started for firms with 120,000 or more employees in October 2012, and finishes up with those with fewer than 30 employees from 1 June 2015 onwards. The timetable for those small employers is then arbitrarily staggered (having regard to the last 2 characters of the PAYE reference number!) over a period to January 2018.
The Pensions Regulator estimates that it will take most employers up to 18 months to prepare for auto-enrolment.
The date on which an employer is required to implement auto-enrolment is known as its “staging date”. This can be determined from a table on The Pensions Regulator’s website. Click Here
One of the key things to recognise about auto-enrolment is that it is, essentially, to do with the employer’s own administration, and employment law. It is not, first and foremost, about selecting a pension scheme (although many employers will have to do that as part of the preparation).
In the near future, it is certain that all packaged pensions contracts on offer through the financial services industry will meet the legal requirements of auto-enrolment (e.g. in relation to ages of participants, percentage of contribution, etc).
Meanwhile, various software solutions are beginning to emerge tailored to the administration functions of the auto-enrolment rules, which is where the real operating issues will arise for employers. These will include: tracking the history of each employee; determining when they should be auto-enrolled; generating notices to employees; notifying the pension provider of each enrolment; and so on. It is likely that a number of such solutions will be linked to employers’ payroll packages, as they are working from the same data, and ultimately the operation of pension contribution will be part of the payroll function.
The auto-enrolment problem is mostly going to be about cost, and HR administration – not about pension scheme selection!
At Keens Shay Keens MK, we are actively monitoring aspects of auto-enrolment as they emerge:
- The requirements of the auto-enrolment process.
- Systems (software based) to manage the ongoing execution of the auto-enrolment process, including compliance.
- Awareness of pension providers’ journeys towards offering schemes which are designed or adapted to meet the requirements of the legislation.