2012 seems like a long way off (unless you are a potential Olympic athlete struggling with an injury) however, the timing of the first ‘staging date’ for employers to automatically enroll their qualifying employees into a pension scheme means the very largest employers, with 120,000 or more employees, have just over a year to comply with the new legislation. Some will be in a more favourable position than others but if pension scheme audits still do not appear on the corporate agenda it is about time they did.
Employers should be identifying the staging date from which they will be required to auto-enrol all staff into a qualifying workplace pension scheme or the government's alternative scheme NEST.
Employers with 120,000 employees or more must auto-enrol them from October 2012, but can do so from July 2012 if they wish. The requirement will then be phased in for all organisations according to workforce size until September 2016.
All employers do have the option of moving their staging date forward, but why would they? Consider a retailer having to go through a massive enrolment period just before Christmas 2012 and you will find the answer. In November 2012, employers with 50,000 to 120,000 employees will find their staging date firmly at their doorstep. In January 2013, employers who employ between 30,000 and 50,000 employees will be in the same position, so that is going to catch a lot of the big high-street retailers. If they employ a lot of staff around Christmas and have got their busiest time of the year, their HR department is already snowed under dealing with all those extra people, so how would they cope with auto-enrolment? Although not on the same scale it is important for smaller business to be aware of their staging date as it might not fit neatly within their corporate ‘busy periods’.
Employers should begin to look at their existing pension provision to assess whether any existing pension scheme on offer will meet qualifying scheme criteria, how many employees are currently enrolled in the scheme, existing employer and employee contribution levels, and how many eligible jobholders they have. Employers will have to review how many people they will have to auto-enrol who are in the relevant age bands; working out the cost impact.
Then there will be the analysis of what kind of pension schemes will be developed. Many employers will have a scheme in place but is it a ‘qualifying scheme’ and if it isn’t what steps need to be taken to qualify it? Employers do not have to have just one scheme so are tiers of pension provision a possibility with NEST in place for a certain proportion of the workforce? Those who have reviewed pension schemes will confirm such an analysis is not a two minute job.
Employers will have to plan for cost increases and be thinking about how to structure their scheme, what the contributions look like, and how they are going to bring extra workers in, how they are going to manage that financial pain over the next few years. Employers are still finding it tough out there.
When discussing the finer details with smaller employers I always get ‘our staging date is too far away to bother about it at the moment’. However, even if employers do not have to comply with auto-enrolment legislation until one of the later staging dates in 2014 or 2015, carrying out this analysis as early as possible will help plan for, and absorb, any potential cost increases over a much longer period, lessening the impact for the employer and employee (as don’t forget, employees have to contribute as well). Timescales for analysis can take between 12 to 18 months ahead of the staging date.
It is not just the cost issues that will have to be addressed. Employers should also ensure their administration systems will be able to cope. Twelve month in system design is no time at all and payroll systems needs to be set up in such a way that when the employee becomes eligible for auto-enrolment (and compulsory contributions), the payroll process is set up to identify it. It would also be prudent to review contracts of employment and any employee consultation processes can certainly eat into 90 days of a ‘staging date strategy time frame’.
Employers must also build in time for communicating with employees and possibly communicating the changes to staff in detail, ideally twelve months before the employer’s staging date. Time should be allowed to design and write communications materials. There will be a large number of employees who have not belonged to a pension scheme before, so you must ensure communications are easily understood by all employees. Stress testing a first draft with a selection of employees initially to ensure it is understood is a very useful exercise.
With the media hype that is promised it would be worthwhile employers communicating the reforms at an earlier stage.