Pension revolution that affects us all

Measures aimed at boosting saving for retirement are placing increased strain on business, but perceived burdens can be turned into a bonus, writes Pádraig Floyd


It’s said there are only two things you can be certain of in this life – death and taxes.

The success of our culture has extended the lives of our citizens, but left them without the means to support their final years. The state cannot afford to step in and so the responsibility is being returned to the individual through the introduction of auto-enrolment into a pension scheme.

Many seem to think auto-enrolment is yet another government programme that sounds good, but won’t apply to them. They’re wrong. Auto-enrolment is a programme of change that will affect every single UK employer and their workers from now until the end of time. Or at least until the law is changed.

All employers, of all sizes, are required to enrol their employees in a pension scheme and be responsible for the contributions. That may not sound too difficult, but appointing a provider is only half the story.

The country’s retail giants have already been through the process and, despite access to very clever advisers, it cost them a pretty penny just to be sure they complied with the legislation.

From April 2014, employers with more than 50 workers must be ready for auto-enrolment, even if they take advantage of a deferral period to fine-tune their launch. Before April, there are 5,000 employers required to start. At fewer than 40 a day, that doesn’t sound like an onerous task, over a period of 130 days. That is until you account for all the lost weekends and Christmas, and it starts to look rather daunting. As 2014 isn’t a leap year, there isn’t even the consolation of an extra day to cram in some overtime.

Auto-enrolment is designed to make the future lives of UK citizens better than they can anticipate today

This highlights the increasingly apparent problem of a lack of capacity in the industry. An employer may find a pension scheme provider they’d like to appoint, but that provider may not feel the same way. Even if an employer has an existing pension provider, it should not be taken for granted that they can rely on their assistance. With a further 20,000 employers staging by the end of summer, any provider or adviser who thinks auto enrolment has been left too late, can afford to be choosy and may just say no.

If no one else wants to take on a company’s business, there is only one option left and that is Nest (National Employment Savings Trust). Nest has to take on any employer, however large, small or complicated, but that isn’t the end of the process. And this is why there is so much misunderstanding among the business community about the reforms.

Auto-enrolment is not a single action to be executed, like putting the clocks back. This is the start of a never-ending process to be run on a regular basis. That does not mean once every three years for those employees who choose to opt out, or even annually. Regular means every single pay period, for every worker, whether eligible or not.

There are so many variables at play in the eligibility criteria that an employee may be eligible one week and not the next. During the Christmas period, there will be additional work, not only to process overtime payments, but to assess whether those payments trigger eligibility for auto-enrolment.

Everything hinges on the payroll process and that is the responsibility of the employer. So even if you find a provider who wants your auto-enrolment business, you can anticipate burning the midnight oil to ensure compliance with auto-enrolment before every pay run.

Unfortunately, payroll has been one of the weak links in this process. Those who staged introduction over the last year faced many difficulties and often had to circumnavigate their own payroll processes because they couldn’t rely on it to deliver the data they needed.

This hasn’t been resolved yet and there are concerns smaller employers will be less able to cope with the additional administrative burden.

It’s not necessarily all bad news. For employers who make it through auto-enrolment unscathed, there are potential benefits that could help the business, though at first they may not be apparent. The more enlightened employer, rather than trying to forget the pain of compliance, may use it to their advantage.

Communicating the purpose of auto-enrolment may increase goodwill and give staff a better understanding of their benefits, and the role the employer plays in providing them. You’ve got to pay the contributions anyway, so why not take some of the glory?

Some organisations are making auto-enrolment a core element of their HR strategy, seeing it as a way of strengthening the bond with their workforce.

This is particularly true in sectors where competition for skilled staff is keen. Auto-enrolment is designed to make the future lives of UK citizens better than they can anticipate today. Unfortunately, in achieving that goal, there will be some teething troubles and growing pains, and at the moment it is business that has to shoulder the burden.

Employers cannot opt out, so they must choose whether they grin and bear it or try to leverage an onerous compliance issue to serve their own business needs.