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Auto-enrolmentLatest NewsEconomics, government & businessDepartment for Work and PensionsPay & benefits

Pensions auto-enrolment will run till October 2015

by John Charlton 28 Sep 2009
by John Charlton 28 Sep 2009

Roll-out of the Government’s flagship auto-enrolment pension scheme will go on until 2015 according to a Department of Work and Pensions (DWP) consultation document.

The plans also revealed that employers will not have to pay the full 3% contribution originally envisaged until October 2015 at the earliest.

The consultation paper said that auto-enrolment will start for large employers from October 2012. Smaller employers are likely to start towards the end of the three-year transition period.

Phased introduction

Minimum employer contributions to pension schemes will be 1% per year during a three-year staging period up to September 2015. That will rise to 2% in October 2015 and to 3% from October 2016.

The DWP plans to divide employers into about 30 groups, according to size, and each group will be given an assigned date, between October 2012 and October 2015, on which they must start auto-enrolment.

Steve Charlton, principal at pension specialist Mercer, said: “Employers mustn’t use this as an excuse to sit on their hands. It’s still compliance by 2012 for many employers.

“We’re pleased that the DWP has listened to the concerns expressed by the pensions industry on the changes to reduce operational risk. Over one million employers need to be included in the process, so it makes sense to spread the introduction.”

Employers with defined benefit or hybrid schemes – likely to be the large ones – can defer auto-enrolment for up to three years from October 2012, said the DWP.

If employers close such schemes before the three years are up they will have to auto-enrol employees into an alternative scheme and pay back missed contributions.

Although small employers, defined as those with fewer than 50 employees, will have longer than larger ones to implement auto-enrolment, the DWP plans to randomly select a group of them earlier in the process.

They will be chosen, said the consultation document, by their PAYE reference numbers and details will be given in the implementation regulations which will be published next year.

New employers that start trading after October 2012 will be in the final four groups selected for auto-enrolment.

Too long

Maggie Craig, director of life and savings at the Association of British Insurers, criticised the length of the phasing period in the Daily Telegraph.

“The four-year delay before contributions rise to 3% is unacceptable. It means that no employer will have to pay more than 1% until October 2015. The rate of saving for people in the scheme will move at the slowest.

“As things stand employers may be encouraged to ditch private schemes which benefit from higher contributions in favour of the state-backed scheme where they could pay just 1% for at least three years, with government approval.”

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The Association of Consulting Actuaries said it estimated that four out of 10 small employers plan to close their existing pension schemes before personal accounts are introduced in October 2012. Personal accounts are at the heart of the auto-enrolment scheme.

The DWP said auto-enrolment and associated regulations will bring between six and nine million people, who don’t have one, into a workplace pension plan.

John Charlton

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