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Insight

They're Compulsory Pensions not Auto Enrolment

What is in a name?  Well, on 1 October 2012 the government's new compulsory pensions system went live. As you'll know from our briefing notes or the impressive volume of press coverage this week, it What is in a name?  Well, on 1 October 2012 the government's new compulsory pensions system went live. As you'll know from our briefing notes or the impressive volume of press coverage this week, it affects the largest employers first with a 6 year rolling programme of "staging dates" to gradually involve all employers.

Lots of press coverage calls the new regime "auto enrolment" and there's even a clever little logo to go with that name. You may have seen it - it looks like 3 pound coins next to each other, which is interesting as the average contribution for the target population is about £3 a week.

But the name is dangerously misleading for employers. There is nothing automatic about the new system for them. Most employers need to make changes to payroll systems, to recruitment processes, to employee data collection, to contracts (for employees and contractors and with employment agencies) handbooks, to existing pension schemes. Then they need to identify and make special provision for those not yet 22 years old, or who earn under the pay threshold, or who have already built up a substantial pension that has HMRC protection.

None of this is done for them; nor is there any financial assistance available. The costs of implementation may well create more strain than the 1% of part of the employee's pay that is the compulsory contribution.

It is true that enrolment will be automatic for the employees and in that sense the name is accurate. But that would have been the case if the changes had come in by making it compulsory to pay into the stakeholder schemes that almost all employers have to designate. And that would have been a lot less work for everybody.

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