Auto-enrolment: are you prepared?

Within the next 12 months, new pension laws will be introduced, making it a legal requirement for every employer in the UK to automatically enrol those members of its workforce aged between 22 and state pension age, who work or normally work in the UK and have qualifying earnings payable above the auto-enrolment earnings trigger (currently £7,475, as updated to 2012 levels).

A recent survey suggests that almost half of all UK business owners are unaware of the auto-enrolment regime and the impact it will have on their business. The same survey suggests that three quarters of those who are aware believe that their payroll costs will rise after 2015, following the introduction of auto-enrolment in 2012.

When will my firm be affected?

The auto-enrolment regime will be phased in between 2012 and 2016. Duties will be introduced to employers in stages, depending on the size of the employer’s PAYE scheme as at 1 April 2012 (working from the largest to the smallest employers). For a fuller description of the regime, see June Crombie’s article, Journal, May 2011, 47.

The Department for Work & Pensions’ website (www.dwp.gov.uk) provides a link for employers to find their staging date, although it should be noted that the review process proposes allowing employers to act as early as July 2012 if they choose.

Regulator’s guidance

The Pensions Regulator (TPR) has helpfully published a series of detailed guidance notes addressing the new employer duties (see panel). These are said to be aimed at professional advisers, large employers with in-house pension professionals, and those with a sound knowledge of pensions. However, they will be useful whatever your level of knowledge.

They will provide an invaluable source of guidance for any employer unsure about how this new regime will impact on its business, and particularly how to implement its new duties.

The Pensions Bill 2011 will have an impact on what the law will finally require. TPR’s guidance assumes that the changes in the bill will pass into law. Only a small proportion of the guidance is likely to be affected. The final version of the guidance will be issued when updated regulations are made, and TPR’s website (www.thepensionsregulator.gov.uk) recommends that employers sign up for news by email so that TPR can let them know promptly when this happens.

How are scheme trustees affected?

Although the duties brought in by the auto-enrolment regime will predominantly apply to employers, trustees of existing occupational pension schemes will also have a role to play.

TPR has therefore published a five-step action checklist for trustees to prepare for auto-enrolment. This is in anticipation of the fact that many existing occupational pension schemes will be adapted for auto-enrolment purposes. In reality, most will not need to make substantial alterations in order to qualify, and so this would seem like the most practical solution for employers looking to implement their duties and obligations under the new auto-enrolment regime.

Once an employer has confirmed to the trustees that it intends to use an existing pension scheme to implement the new auto-enrolment requirements, TPR’s checklist suggests trustees:

• know when they need to act
• start their planning process
• consider the impact of auto-enrolment on their existing scheme
• mobilise an implementation team
• communicate changes to all scheme members.

The checklist assumes that the trustees know when the sponsoring employer will become subject to the new auto-enrolment requirements. It also assumes they have discussed these requirements with the employer to determine whether its pension scheme can and will be used to meet the requirements. If the trustees have not yet done so, it would be good practice for them to engage with their sponsoring employer at an early stage in order to determine what, if any, involvement they will have when it comes to the implementation of the auto-enrolment regime.

In most cases, the employer will find it useful to engage with the trustees and may want them to respond to some queries that it may have with regard to its pension scheme and its ability to meet the requirements for existing active members.

Smoothing the process

It is clear there are roles for both employers and trustees when it comes to the implementation of this regime, and only time will tell how rough or smooth that process will be. In the meantime, employers and trustees alike are advised to look at the Department forWork & Pensions’ and TPR’s websites to assess what will be expected of them as this process is rolled out.

The nine guidance notes that have been published are:

• Employer duties and defining the workplace – an introduction to the new employer duties
• Getting ready – first steps to prepare for the new employer duties
• Assessing the workforce – how to identify the different categories of workers
• Pension schemes – pension schemes under the new employer duties
• Automatic enrolment – an explanation of the automatic enrolment process
• Opting in and joining – how to process pension scheme membership outside of the automatic enrolment process
• Opting out – how to process “opt-outs” from workers who want to leave a scheme
• Safeguarding individuals – the new safeguards for workers
• Keeping records – records that must be kept by law under the new employer duties.