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Insight

There’s nothing automatic about it!

05/11/2013
The headaches faced by employers struggling with the Government’s flagship pension reforms have received widespread national media coverage in recent weeks. At its simplest, automatic enrolment The headaches faced by employers struggling with the Government’s flagship pension reforms have received widespread national media coverage in recent weeks. At its simplest, automatic enrolment requires certain workers to be automatically placed into a pension scheme and provided with mandatory pension contributions.

Many employers could be forgiven for underestimating the challenges of these reforms, which are being introduced for different employers at different times, with larger employers coming under new laws before smaller employers. The mistake that some employers have made is to simply see automatic enrolment, as an accounting item, something to be factored into projected staffing costs over the coming years. Although it is right to take account of this cost, the real price lies in administration.

It does not help that these reforms are, somewhat deceptively, labelled under the umbrella of automatic enrolment. There is nothing automatic from an employer’s perspective with more than one SME describing these reforms as a nightmare.

Automatic enrolment has been described as project management on an industrial scale. The challenge lies in reviewing and upgrading IT and administrative systems so that vast quantities of personal data can be collected, categorized, scrutinized and communicated against demanding timescales. The cost of getting this wrong can be expensive and increasingly expensive, the nearer an employer gets to its staging date.

Another problem, rarely mentioned outside specialist pension circles, is what has been described as the automatic enrolment tsunami. This is the concept used to describe the problem that many of the smaller employers are likely to face. With a large wave of employers all needing to automatically enrol employees at the same time, the concern amongst pensions professionals is that there will not be enough capacity in the market to meet the demand. SMEs will either be hit by exorbitant charges for the cost of IT, administrative and legal support or they will not be able to comply at all, no matter what they are willing to pay.

Given the problem of the UK’s rapidly ageing population, supported by an increasingly narrowing base of workers, it is simply not an option for the Government’s reforms to fail. It is for this reason that the Pensions Regulator has been given the power to impose expensive fines on employers who fail to comply. Whilst the Regulator may be initially sympathetic to an employer that has done its best but fallen short, a harder position is likely to be taken for employers who have failed to plan or allocate adequate resources in the first place.

On 20 November we will be again running our popular automatic enrolment seminar in conjunction with Close Brothers Asset Management. This is completely free of charge and provides an ideal opportunity for employers to tackle this thorny problem before it is too late. If you would like to know more about automatic enrolment, please click here.

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