In just a few months we will see the phased introduction of auto-enrolment of and other associated employer duties resulting from the pension reforms. This is not without its challenges for anyone involved in running, managing or administering workplace pension schemes.
So what can employers do to prepare?
The first action for an employer is to find out when its staging date is likely to be. This will be determined by the employer’s largest PAYE scheme as at 1 April 2012, and includes all individuals who are paid through the employers’ PAYE system which in some circumstances could include the pensioner payroll. Largest employers are required to auto-enroll their employees first. PAYE schemes with 120,000 or more employees have the earliest staging dates.
It is the employer’s responsibility to identify its own staging date, however the Pensions Regulator will write to all employers around 12 months before their staging date, so that they know when to start auto-enrolling their eligible jobholders.
Employers with more than one PAYE system will start their duties for all their PAYEs at the same time, on the staging date of the largest PAYE system.
Equally as important, and before doing anything else, the employer will need to analyse and segment its workers into the categories identified in the legislation. Employers will need to look at the contractual relationships they have with people working for them to ensure they have correctly identified those who are considered workers (certain categories of person may or may not be workers and may need further evaluation). This will be needed to analyse the financial impact on the business, both in terms of additional pension contributions and the cost of ongoing administration and compliance to satisfy the legislation and continue to meet their HR and business objectives.
Employers must be ready to comply with the new duties at the staging date so it is essential to start planning for auto-enrolment well in advance of the designated staging date. It should be noted that the new obligations may be quite onerous and although an employer’s staging date may be a few years off some elements of the legislation, such as the safeguards for individuals will be effective for all employers from October 2012.
There is the decision on the type of pension scheme to use. Should employers use one scheme for all employees, or different arrangements for different sections of their workforce? This is an incredibly important decision and there is no one-size-fits-all answer. The Pensions Regulator stated in its corporate plan 2011-2014 that "all employers will need to review their current pension provision" in light of the new requirements, so employers should carefully consider all options before deciding how they proceed.
Where an employer has varied pension provisions for different segments of the workforce, the qualifying scheme test may not be met in relation to many of its employees. The employer can decide to amend the rules of one of its existing schemes where necessary so that they comply, develop an appropriate new Scheme(s) or use one of the ‘Super-Trusts’ e.g. NEST, for auto-enrolment purposes.
Whatever solution employers choose, they will need to ensure it integrates seamlessly with their existing HR and payroll systems to ensure timely and accurate flows of data. The system will also need to manage and, crucially, record all employee communications. A full audit trail must be maintained in order to effectively track and meet the automatic re-enrolment requirements. Most existing HR, payroll, administrator or provider systems were not built to accommodate these requirements.
Employers need to start considering, as early as possible, what they will be required to provide to their employees by way of communications, and when/ how those communications will be made available. The preparation of the required employee communications should be done well in advance of the staging date, as auto-enrolment and the provision of information, where necessary, needs to take place on the staging date. It is likely that all employers will need at least two parts to their communications - core information to all workers and targeted communications to each segmented group. Communication channels to be considered include written communications and briefings, and face-to-face meetings with individuals or groups of staff in the same segment. Employers may even wish to consider setting up helplines.
Running at the same time is the Retail Distribution Review. It has been suggested that there will be a finite capacity that the Pensions Market will be able to cope with. With the Pensions Regulator being able to impose fines of a £400 fixed penalty plus escalating penalties of up to £10,000 per day, the message is clear; your ‘staging date’ is closer, and more important, than you think.