Have your say: preparing for the 2012 deadline

Stephen Bowles

Head of defined contribution 

Schroders

When asked to estimate how far away the horizon is we almost always over estimate the distance: 10 miles; 20 miles; perhaps even 30 miles? All of these are wildly optimistic, the reality is that for a person of average height the horizon is only around three miles away. 

We in the pensions industry have a strong track record of ignoring forthcoming change. This ‘collective denial’ approach is now being applied to the Pensions Act 2008. Unsurprisingly the limited success of this approach in the past is likely to be repeated again. 

Employers seem quite unaware of the changes that are coming. More worryingly still is that there seems to be a strong positive correlation between employer size and preparedness for issues such as auto-

enrolment. Given that there are around a million employers who have less than 10 employees, the conclusion must be that for most employers hoping for the best is the strategy of choice. Even those employers who have grasped the implications seem to be relying on a political new broom to sweep away these inconvenient requirements. 

Neither ‘pleading ignorance’ nor ‘hoping for the best’ is however a credible strategy. Significant change is coming in 2012, employers are highly likely to have much to consider and much to do. 

Richard Bryant

Head of trustee services

Atkin & Co

Any employers that were prepared for the introduction of auto-enrolment are likely to feel aggrieved that their time and effort have been wasted. Many employers will be reticent to take further action to prepare, and will wait for details to be set in stone before taking any action. Given the further delay to introduction, recently announced, this may be a sensible option. The DWP’s recent research paper on small employer attitudes to personal accounts suggests that few will take any action until about 12 months prior to implementation. This may be concerning for the government but, quite frankly, who can condemn this response? 

Who would bet against further major changes or delays to the introduction of auto-enrolment following the general election this year? The fact that Tata Consultancy Services are the sole remaining bidder for the administration of personal accounts might lead many to consider that the requirements or the tender process were flawed and will need to be carried out again. Therefore, many employers may say ‘Tata’ to personal accounts for the time being!

Steve Charlton

Senior consultant – defined contribution

Mercer

Research carried out last November, in connection with a series of webcasts Mercer is running on personal accounts found that few employers were prepared for the introduction of auto-enrolment. Sixty-three percent of participants said they still need help in understanding the regulations and their duties, while only 11% stated that they were prepared for the financial implications of the regulations.

When talking to employers we still find that there is a lack of understanding and confusion between the work of PADA and its building of the personal accounts pension scheme and the regulatory requirements that mean employers need to auto-enrol their workforce into a pension scheme and pay a contribution on their behalf. We hope that the rebranding of the aforementioned scheme to the National Employment Savings Trust (NEST) will separate these two elements and bring greater focus to the responsibilities of employers.

This focus needs to be achieved as, despite the reports of delays, employers with more than 6,000 employees will need to comply within the first six months of the regulations coming into force (October 2012). Companies with more than 800 employees will need to comply within the first year.

Jamie Clark

Business development manager

Scottish Life

Employers are unlikely to be prepared for auto-enrolment for several reasons. First and foremost, they may not even know about the proposed new regime and how it will affect their business. Secondly, their attention may be focused on keeping their business alive, given the current economic climate.

But even employers who know about the changes, and who are financially comfortable, may not be preparing. You could argue that there is no immediate need for them to prepare. The period over which contributions are to be phased in has already changed twice; a change in Government could mean a further postponement, or fundamental changes; and we are still going through the consultation for much of the detailed regulations. Is it possible to properly and effectively prepare with so many unknowns?

What employers, their advisers and the pensions industry need is absolute certainty about what is going to happen, and when it will happen. Only with the proper information can proper planning take place.

The dust is expected to settle around the middle of the year. Until then, it should be sufficient to ensure that employers are kept updated about the likely implications of auto enrolment. 

Lee French

Head of customer relationship management

Alexander Forbes Financial Services

Given the current economic climate, most companies will be concentrating on more immediate problems, such as survival. Many will not welcome auto enrolment so soon after the recession and increased NI contributions and in September, when the government announced it was opting for phased-in implementation of auto-enrolment, which would not be fully completed until 2016, there would have been a sigh of relief from many employers.

Many companies that we are speaking to are not taking their introduction seriously enough due to the government’s indecision and the lack of exact detail that has been published directly to them. For example, the recent extension of the transitional period in the PBR, is a large indication that the government is not ready, this can only discourage employers from making their own preparations.

Many employers have deferred taking any action until after the general election at least, once they know how the new government intends to proceed with auto enrolment. However, this can only lead to further delays given that the Tories have said that they will conduct a full review of personal accounts or NESTs.

While the vast majority of employers may not be ready, once they become aware of the level of potential fines they may become more interested! 

Mark Futcher

Associate

Barnett Waddingham

Most employers have a budget to spend on employee benefits. If they are forced to enrol members into a Qualifying Workplace Pension Scheme (QWPS) then it is highly likely that other benefits will be trimmed back. I believe that many larger employers are budgeting for this now. The credit crunch has focused the minds of many companies who will be considering their current policy on pay rises, mindful of the impending increase in benefit spend, 

While most larger employers will have advisers (EBCs, IFAs, accountants, legal) advising them of forthcoming legislation and will be aware of the proposed rules, many smaller employers may not have this luxury. One advantage they have is the delayed start, with smaller companies not forced to comply until 2013 at the earliest. They will no doubt be alerted to the issues ahead of this by the press as the administrative burden starts to cause headaches for the larger employers and therefore the delayed start is welcome to give them a chance to learn lessons. With so much still to be decided and confirmed, the only thing that can be taken as a given is that membership of pensions will increase and long term savings will too.

Ross Jackson

Head of marketing communications

Aegon

Employers are not just unprepared for the introduction of auto enrolment – many are unaware of what they will be required to do when this comes into play. As employers have different auto enrolment duties depending on the criteria the employee meets, they need to take this into account when making their preparations. It’s not as straight-forward as auto-enrolling all their employees into a qualifying scheme so employers need to get to grips with the different categories of workers and jobholders and the requirements for each. It’s highly unlikely that employers will have delved into the detail of what their duties are yet, let alone started to think about the cost implications and the additional administrative burden that auto enrolment brings.

Although automatic enrolment will start as planned in October 2012, employers will be staged by size from largest to smallest through to 2016. However, employers should be sitting down with their advisers now to assess the impact of these changes on their business and work out how best to manage the costs that they will incur. They will need to set up processes for provision of information, as well as administrating refunds of contributions for those employees that decide to opt out of the scheme. Another new administrative requirement will be ensuring that any employees who previously opted out of the scheme are automatically re-enrolled after three years. 

At AEGON, we’re helping employers prepare for 2012 through provision of information and tools on our dedicated Pensions Reform website at www.pensionsreform.aegon.co.uk.

John Lawson

Head of pensions policy

Standard Life

The state of preparedness varies from employer to employer. The largest employers are understandably best prepared – those with large HR departments and their own pension manager. Some large employers have already changed their scheme contribution structures to comply with the new 8% of banded earnings minimum.

With smaller employers, the picture is patchier – some have never even heard of the concept of automatic enrolment. The recession has also focused their attention on immediate survival and, of course, the issue is less pressing for small employers. They are at the back of the queue when it comes to fulfilling their legal duty – for some, this might not bite until 2016. 

The pensions industry and advisers in particular have a big role to play in educating employers of all sizes. Indeed, I think that this is a fantastic new opportunity for advisers to win new clients. 

Regardless of whether an employer chooses a private pension scheme or the government’s new scheme to fulfil its automatic enrolment duty, one thing is clear. Employers will need their hands held to ensure that they properly register and maintain a suitable pension scheme. Advisers are ideally placed to fill that role. 

Ferdinand Lovett

Solicitor

Sackers

Our broad impression is that larger employers are more aware of auto-enrolment and are preparing themselves in a number of ways. Some are gearing up for a wholesale review of their pension arrangements in the light of the reforms and others have already assessed whether their schemes meet the quality requirements.

At the other end of the spectrum, it is clear that things are very different. A recent study carried out on behalf of the Department for Work and Pensions and directed specifically at the likely responses of small employers (fewer than 50 employees) to the 2012 pension reforms revealed that there was “a very low awareness of the pension reforms among all the small employers [in the study]”.

More generally, employers may also be awaiting the outcome of the general election before making changes to pensions. But will a change of government materially alter the shape of the 2012 reforms? The truth is that no one really knows. However, while the NEST (formerly personal accounts) scheme may be tinkered with, broad cross-party consensus on auto-enrolment makes it likely that this reform is here to stay.

Paul Macro

Senior consultant

Towers Watson

Medium to large employers who already have a pension scheme will most likely be aware of the need to auto-enrol all staff and will have considered it to some degree. However they cannot be fully prepared due to the uncertainty in the proposed rules/intentions. For example the continued uncertainly over the timing of the changes – initially it was to be spread over a ‘period’ of perhaps 12 months, now it is four years, with no indication yet of how employers can find out when during that four year period they need to comply. This is compounded by the Conservatives saying that they might bring auto-enrolment forward, but not necessarily the requirement for minimum contributions! Significant uncertainly also still exists around how employers can confirm that they have met the minimum contribution standard without checking each and every individual member, as we await the DWP’s response to its consultation on its DC scheme certificate idea. As for smaller employers who don’t have an existing pensions scheme, I suspect many of them simply don’t know its coming, or if they do its ‘too far away to worry about’ and so will be very unprepared.

Catherine Mancusi

Policy adviser – pensions

National Association of Pension Funds

The introduction of automatic enrolment will have a huge impact on the way employers and schemes process membership and contributions. This is why the NAPF has repeatedly called on the DWP to build more flexibility into the auto-enrolment process to make it as easy as possible for employers to implement. 

For many employers, the introduction of auto-enrolment could mean that they have to realign their payroll processes, contribution payments, and record-keeping methods to fit with the new 2012 regime. Instead, we feel that employers should be given more choice and flexibility over how they implement auto-enrolment. Making life difficult for employers with existing schemes will only encourage them to ‘level down’ to the minimum.

But as big as auto-enrolment will be, many employers are currently facing immediate constraints on their time and resources, making 2012 seem far off in the future. The provision of education and information is vitally important to make sure employers begin to understand what is expected of them, and see this as a positive rather than negative change.

Paul Sturgess

Director of DC policy and product development

Capita Hartshead

The NEST test. I think that for employers there are three stages to the implementation of legislative changes like auto enrolment and the closely related NEST. 

1. Ignorance 

2. Conceptual awareness of the change but no real plans 

3. The ‘planned’ stage where employers know what they expect to do.

The current status of employers varies, with many smaller employers falling into category one and those that don’t, into category two. I don’t see many in category three so far. This shouldn’t surprise to anyone, after all: 

• We have an election coming up and (while pension changes are unlikely to be at the top of the next government’s shopping list) for many this will be a reason for doubt and delay. 

• The government has already pushed back the implementation date for NEST. 

However, the implementation machine is still rolling on and employers need to work out their strategy based on what we know so far, in case the fundamentals don’t change. In the last Capita Hartshead administration survey 55% of respondents expected a scheme review as a result of the changes. 34% said that they will revise benefits to control costs. 

The additional costs to employers are, potentially, material. Employers need to start planning now if they want to make significant scheme changes in time. I know that there is much detail still missing but as a contingency at least, employers need to complete their “NEST test” to verify whether they will expand membership of their current arrangements or plan to contribute to NEST for their current unpensioned employees. 

Alex Thurley-Ratcliff

Head of multimedia

Shilling Communications

If only the answer was as simple as the question! Some employers, whatever their size, are pensions-aware and prepared, albeit through gritted teeth, to get on and implement auto-enrolment. These have begun to consider what and how they will proceed, keeping one eye on political “developments” at the same time. There are also a number of employers, according to the Federation of Small Businesses, which are unaware of the legal requirement and are ill-prepared. Unfortunately, millions of the non-pensioned are employed in these typically smaller firms.

But then there’s a bigger issue. The consensus is that auto-enrolment is desirable, and I don’t disagree, but that leaves a significant problem unanswered. Auto-enrolment simply does not address employee engagement. With NEST delivering a low level of pension saving, and occupational DC schemes using low level default contribution levels, we all know that auto-enrolment alone will not ‘magically’ deliver a reasonable level of retirement income for those currently non-pensioned employees.

The answer has to be one of genuine effort at all levels – governmental, industry, public bodies, education, employers and individuals – to get to grips with retirement provision at all stages of life, through employment, changing life situations and into an effective decumulation phase.

Next month’s question: An independent trustee recently branded DC default investment strategies as a “cop out” by trustees – do you agree?

Email your responses to sebastian.cheek@incisivemedia.com by Thursday, 11 February 2010. 

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