Government announces more detail of pension auto-enrolment scheme

Jacqui Timmins, pensions partner at Pinsent Masons, sets out the current position on auto-enrolment and the steps employers need to take to ensure compliance.

The Government is pushing ahead with plans to force small firms to auto-enrol all employees into a pension scheme, but only those employees earning more than £7,500 will be included.

Announcing the findings of a review into auto-enrolment, the Department for Work and Pensions (DWP) confirmed that every UK company will have to offer a pension scheme from 2012. Those employers not offering their own scheme will be compelled to use the new National Employment Savings Trust (Nest).

The decision comes despite warnings from small business lobby groups that those firms employing fewer than 10 staff would be unduly burdened by any auto-enrolment scheme.

The DWP has, however, made some concessions to employers, with firms to be given 12 weeks’ grace before staff are automatically enrolled, to ease the burden on those employing large numbers of temporary workers.

In addition, Nest will not force anyone earning below the £7,500 PAYE threshold to enrol but will allow those on a percentage earnings band between £5,000 and £7,500 to opt in. The 2008 Pensions Act had suggested auto-enrolling all staff earning £5,035 or more.

Dr Adam Marshall, director of policy at the British Chambers of Commerce, welcomed the 12-week exemption.

“Thanks to the 12-week exemption, companies with a high turnover of staff or a large number of seasonal workers will not have to spend a lot of time and money enrolling employees into pensions that they do not intend to continue,” he said. “Employment agencies, which will be very important in the fight against unemployment and underemployment in the years ahead, will benefit hugely from this change.”

Marshall called on the Government to embark on a communications drive to inform the 1.1 million employers in the UK of their new obligations.

“Unless businesses and their employees understand the changes ahead, we could see significant confusion as auto-enrolment comes in from 2012,” he said.

John Cridland, CBI deputy director-general, said: “The most important thing is that all eligible employees will be included. This will mean that the reform achieves its aim of boosting pension saving for all.

“It is also right that auto-enrolment will kick in three months after someone has started a job. This will avoid people on short-term assignments, who want to maximise their income, being auto-enrolled. It will also avoid the cost to employers of auto-enrolling staff who want to opt out.”

Joanne Segars, chief executive of the National Association of Pension Funds, said it was a “relief” that smaller outfits will not be exempt.

“The whole point of this reform is that pensions reach all workers, including those in small firms,” she said. “We are also pleased the Government ignored calls to significantly raise the earnings bar at which auto-enrolment is triggered. This would have put pensions beyond the reach of the very workers we need to reach. Raising the auto-enrolment trigger to £7,500 per annum, with contributions payable from around £5,000, will help ensure that it pays to save, and that pounds not pence are paid into a saver’s pension.”

TUC general secretary Brendan Barber said: “Strong lobbies had been mounted to exclude the staff of small businesses – as if they did not need a pension – and to close the new low-cost Nest scheme, despite the clear evidence that the pension industry is poor at serving small employers and low to medium earners.

“We are therefore very pleased that the review has rejected these two calls. If they had been adopted, that would have been the end of any consensus around the 2012 reforms.”

More information on automatic enrolment is available here.

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